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Monday, May 28, 2018, 15:21
BRICS to the future
By Jim O’Neill
Monday, May 28, 2018, 15:21 By Jim O’Neill

The group’s members collectively are on track to become as large as the G7 economies by 2035


As the creator of the BRIC acronym, I have a strong interest in the individual countries — Brazil, Russia, India and China — as well as their collective success. It is now 16 and a half years since I first used the acronym in a paper I wrote as chief economist for Goldman Sachs, titled World Needs Better Economic BRICs. (The “s” was intended to be plural, since South Africa had not yet joined the political club.)

Before I turn to the future, how have the countries done in the past 16 and a half years? Well, certainly in the first decade, up to 2010, they all individually performed much better than I had postulated under any scenario discussed in that 2001 paper. Especially in nominal US dollar terms, they were all significantly bigger by 2010 than I had thought possible.

The second decade — so far — hasn’t been so successful for some of them. Clearly, Brazil and Russia have not had a good second decade as BRIC countries. Both experienced deep recessions and are not yet recovering strongly, even though they have exited recessions. And almost since the day the political leaders agreed to invite South Africa to join them, to make their club BRICS, South Africa has been disappointing.

Frankly, I wouldn’t have made that decision because, even if South Africa had enjoyed strong GDP growth, it is never going to be an especially large economy, as it doesn’t have a lot of people. Even if it enjoyed enormous productivity growth, it would never get to the size of the top 20 economies of the world. Each of the four BRIC countries achieved being in the world’s 10 largest by 2010. Despite their extended cyclical weakness, Brazil is still in the 10 largest and Russia just outside.

Let me put the scale of the BRIC economies’ rise in a clear context. By the end of 2017, the collective size of the BRIC economies was around US$19 trillion, just below the size of the United States and somewhat larger than the size of the European Union. Despite the lackluster performance of Brazil and Russia, and because of their success last decade — and, of course, the success of China and India throughout the whole period — the collective size of the BRIC economies is today much bigger than any of the scenarios I and my colleagues envisaged back in 2001, and then in 2003.

Of course, at the core of the BRIC success stands China. Of all the criticism I often read about the BRICS idea, the strongest one as we creep through time is that, economically as well as otherwise, its global relevance is not only dominated by China, but very dependent on China. Indeed, who would care about BRI, or BRIS, without China? This is valid but, of course, not a surprise to me, as we suggested that China would become extremely large, not only relative to them but also to every other economy.

And that is the case today. At US$12.7 trillion, China’s economy alone, at the end of 2017, was about twice the size of the other BRICS economies put together. It is about the same size as the euro area. It is not far off three times the size of Japan (by the way, I didn’t envisage China would overtake Japan originally until 2015) and, in 2017 alone, the additional US$1.5 trillion that China created was equivalent to creating another South Korea in one year, or two new Switzerlands.

So, looking forward — in thinking of their individual and collective economic futures in the context of what I had thought in the past — because of China, BRICS is still on track to become as collectively large as the G7 economies by 2035. It will probably be a close-run thing, but it still looks possible. It will require a bigger contribution, perhaps, from Brazil and Russia but, so long as China stays on track, it is still feasible.

As for China itself, even though it has slowed to around 7.5 percent growth on average so far this decade, this is exactly what I had assumed would happen between 2011 and 2020 and therefore, while many worry about aspects of China’s growth, I am not really sure why.

Indeed, if I look at the components of growth, since the 2008 global crisis, China has shifted growth leadership from exports and government-backed investment toward more domestic private consumption. This is extremely impressive and beyond this decade, from 2021 to 2030, I still assume China will slow to around 5 percent growth, but this will be consistent with the BRICs dream, as well as China individually becoming as big as the US, perhaps by 2027.

A word on India. Due to its exceptional demographics, as evidenced by its recent period of real GDP growth slightly faster than China’s, I think it is quite likely it will outgrow China for the rest of this decade and from 2021 to 2030, possibly achieving real GDP growth of 7 percent or more. In this context, India will definitely have a rising impact on world GDP growth as well as within the BRICS aggregate.

As for both Brazil and Russia, they need to rediscover their mojo and, at the heart of their challenges, undertake more serious economic and social reforms. And, of course, reduce their vulnerability to the commodities cycle, not being so overindulgent when prices rise and, therefore, less vulnerable when they inevitably fall again. Of the two, Russia especially needs to find a new mojo. Otherwise, it will never recover to being one of the top 10 world economies and will become less and less relevant within the BRICS group.

As for the BRICS political leaders and their collective policies, I would like to see greater, clearer and more specific global leadership on some big issues that are important to everyone — including, especially, infectious disease control, if I had to highlight one.

The author is the former chairman of Goldman Sachs Asset Management and a British economist best known for coining the term BRIC. The views do not necessarily reflect those of China Daily.

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