BRICS+ is reshaping global trade dynamics and challenging G7 dominance, paving the way for a multipolar system.
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Brics+ group expected to surpass G7 in global trade by 2026: EY India
BRICS+ is Transforming Global : The increasing prominence of nations such as China and India within the BRICS+ framework is transforming global trade dynamics and posing a challenge to the supremacy of the G7, thereby facilitating the emergence of a multipolar system, as indicated by a recent report from Ernst & Young (EY) India. This report analyzes the significant characteristics of the changing roles of the G7 and the BRICS+ bloc in the realm of global trade, underscoring the consequences of the expanding influence of BRICS+, particularly focusing on India and China.
Currently, BRICS+ represents 36.7% of the global GDP in terms of purchasing power parity (PPP), 23.3% of global merchandise trade, and 45.2% of the world’s population. The BRICS+ coalition is in the process of creating a platform for international trade and investment transactions, which has the potential to serve as a cost-effective alternative to the existing SWIFT system. Additionally, the group is working on establishing a trade and reserve currency that will be supported by gold and other selected commodities. With the strong possibility of several new members joining BRICS+, it is anticipated that its share of global merchandise exports may surpass that of the G7 by the year 2026.
Two prominent economic blocs are emerging on the global stage: the BRICS+ group and the G7. These entities are set to vie for increased shares in the global economy, international merchandise trade, and capital flows. In the September 2024 edition of the EY Economy Watch, we underscored the rising importance of BRICS+, not only in terms of global GDP and population representation but also regarding its fiscal capacity to implement stimulus measures aimed at mitigating a recession.
This month’s report delves into the essential characteristics of their respective evolving roles in global trade, with a particular emphasis on export and import trends, while also addressing the implications of BRICS+’s expanding influence within the global trade framework. The data utilized for this analysis was sourced from the International Monetary Fund (IMF) and the World Trade Organization (WTO).
BRICS+ vs. G7: rising share of BRICS+ in global merchandise trade.
The proportion of the BRICS+ group in global merchandise exports rose from 10.7% in 2000 to 23.3% in 2023, marking an increase of 12.6 percentage points (see Chart 1). Conversely, the G7 group’s share in global exports declined by 16.2 percentage points, decreasing from 45.1% to 28.9% during the same timeframe. Meanwhile, the share of the remaining countries in global merchandise exports remained relatively stable, with a slight increase from 44.2% to 47.9%. Consequently, the BRICS+ group has effectively supplanted the G7 group regarding their respective shares in global merchandise exports. Chart 2 illustrates comparable trends concerning their shares in global imports.
Global trade trends: the evolving roles of India and China
India and China are significant participants in the BRICS+ coalition. According to the most recent World Economic Outlook published by the IMF, these nations hold the third and first positions, respectively, in the global economic ranking based on purchasing power parity (PPP) for the year 2023. In terms of market exchange rates (MX), they are positioned fifth and second, respectively, in the same year. Projections for 2028 indicate that India will maintain its third-place ranking in both PPP and MX metrics, while China is anticipated to retain its first and second positions, respectively. Within the BRICS+ framework, India and China rank second and first in terms of economic size for both PPP and MX.
Country-wise % share in total exports of BRICS+ group.
India and China are expected to assume significant roles in shaping the dynamics of global trade through their involvement in the BRICS+ group. In terms of exports, China’s share rose from 36.1% in 2000 to 62.5% in 2023, reflecting an increase of 26.4 percentage points. Following China, India holds the next most substantial position, contributing 7.9% to the group’s exports in 2023. Additionally, the influence of India, Russia, the UAE, Brazil, and Saudi Arabia is progressively growing in both exports and imports originating from the BRICS+ group. Looking ahead, India and China are poised to emerge as two key players in the global economy, significantly impacting both export and import activities.
BRICS+ countries’ role in global trade: growing importance of high technology exports
An examination of the commodity composition of exports from the BRICS+ countries proves to be insightful. The data utilized for this analysis is obtained from the World Trade Organization (WTO). As illustrated in Chart 4, textiles constituted the largest portion of global exports from the BRICS+ group in 2022, accounting for 49.6%. This was followed by telecommunications equipment at 41.3%, clothing at 36%, electronic data processing and office equipment at 35.7%, and fuels at 30.3%. Notably, the share of high technology exports from the BRICS+ group, which includes electronic data processing and office equipment, telecommunications equipment, and integrated circuits and electronic components, experienced a significant rise from 5.0% in 2000 to 32.8% in 2022. This trend indicates a marked transition towards products that are high in technology intensity.
Share of BRICS+ group in world exports for selected major product groups
In the case of imports by the BRICS+ group from the world, the aggregate share in terms of all commodities is lower than their share in exports. In other words, the BRICS+ group are net exporters to the world.
Appreciating Yuan and depreciating Rupee
The substantial economic influence of several nations within the BRICS+ group, notably China, India, Russia, Brazil, and Saudi Arabia, suggests that their currencies are expected to play an increasingly prominent role in a multicurrency system for global trade transactions. As illustrated in Charts 5 and 6, the Yuan has exhibited relative stability, with slight appreciation observed in recent years. Conversely, the Indian Rupee has experienced depreciation, especially from 2018 onwards.
Trends in Yuan/US$
Trends in INR/US$
While individual exchange rates are influenced by a variety of factors, a significant commonality lies in the anticipated behavior of the US economy, particularly regarding US inflation, in comparison to the inflation trends observed in several major BRICS+ economies. Additionally, the status of the US Dollar as a global reserve currency may diminish over time. The proportion of the US Dollar in global reserves has already decreased from 71.5% in the first quarter of 2000 to 58.2% in the second quarter of 2023. The BRICS+ nations have increasingly asserted their importance in terms of economic size and their respective shares in global goods exports and imports. This group is expected to both compete and collaborate with the G7 in shaping global economic and trade policies. Moving forward, the significance of individual BRICS+ members and the collective policies of the group will be crucial in influencing the economic well-being of the global population. In light of current geopolitical tensions, the BRICS+ coalition is actively working to align their policies, which may lead to a decline in the dominance of a) the US Dollar as the preferred currency for international trade and foreign exchange reserves, b) the SWIFT system as a global trade platform, and c) the technological leadership of Western economies. The G7’s role in managing global economic matters is likely to be challenged as the BRICS+ group’s share of the global population, world GDP, and international trade continues to grow. Given the current trends and the strong possibility of additional members joining the BRICS+ coalition, it is projected that the group’s share of global merchandise exports could surpass that of the G7 by 2026.
