G7, G20 – Symbols of two centuries

By Pedro Jordão

In a matter of weeks the world witnessed two major global meetings – the G7 (Group of Seven) and G20 (Group of Twenty). These gatherings, although chronologically separated by just a few days, represent realities separated by decades. Let me explain why.

The G7 was founded in 1997 by seven countries that exerted a strong leadership in the global economy during the 20th century – Germany, Canada, France, United States, Italy, the United Kingdom, and Japan. The European Union was also represented. But as the turn of the millennium approached, it was becoming obvious that those nations no longer dominated the world economy as they did in the past. The world economy was structurally changing, and many developing and emerging nations (in short, I will call them "emerging") were experiencing high rates of sustained economic growth that brought them growing weight, influence, and progress. Subsequently, a few months before the year 2000 another group, the G20, was formed by combining the seven members of the G7 and the European Union with a group of predominantly emerging economies – China, India, Mexico, Australia, Turkey, South Africa, Saudi Arabia, South Korea, Russia, Brazil, Indonesia, and Argentina.

German Chancellor Angela Merkel arrives to participate in the G7 Summit welcome ceremony, Friday, June 8, 2018, in Charlevoix, Canada.[Photo: AP/Evan Vucci]

The choice of members for the G7 and the G20 is not entirely logical. The G7 members represent 11 percent of the world's population, while the G20 represents 67 percent. Contrary to widespread perception, the G7 members are not "the seven largest" economies in the world. China is now the leading economy in purchasing power parity terms and second in terms of nominal value, but it is not a member of that group. India is the world's third largest economy. Indeed, four of the seven largest global economies are not in the G7.

The G7 is not a group of the world's leading industrial nations, either. The largest global manufacturer is China. The G20 more accurate represents the biggest economies, though Switzerland and Spain rank in the 20 top economies but are absent from the group. (Although Spain is a permanent guest).

It is also misguided to assume that the emerging economies included in the G20 have a secondary economic size in comparison with the ones with a seat in the G7. In economic terms, Russia is larger than the United Kingdom, Indonesia is bigger than France, and Mexico is larger than Italy. China's GDP is eight times bigger than that of France. In fact, China's economy, which still faces a long growth path ahead, is larger than the 28 national economies that form the European Union combined.

Over recent decades, most Western societies have been losing some perspective of the deep systemic transformations in the global economic context. The G7 countries now represent only 31 percent of the global economy – and that value will decrease to 28 percent by 2022, while the non-G7 members of the G20 now have a 43 percent share of the global economy, which will increase to 46 percent by 2022. The emerging nations are gaining momentum, size, and power, which confer growing significance to the G20.

At this moment the five largest world economies are the United States, China, Japan, Germany, and the United Kingdom, but in 2030 the five top economies will be China, the United States, India, Japan, and Indonesia.

It is expected that in 2050 the economy of Vietnam will be larger than that of Spain, and that Thailand will have surpassed Holland. China's share of the global economy will probably be 20 percent, while the European Union's 28 countries will retain a share of 9 percent.

Between 2017 and 2019 China will represent 35 percent of total economic growth in the world, and the contribution to global growth will be higher from India than from the Euro zone.

Economic growth is not just an abstract set of figures; it also translates into more individual income, and more consumers. Between 2016 and 2021, an average of 160 million people will enter the global middle class every year, almost 90 percent of them in Asia, and mostly in India and China. The worldwide impact of this new middle class will be immense. It will become a powerhouse of global economic growth, but also the epicenter of major shifts in the world geography of competition, markets, and innovation.

Technological modernity is also spreading surprisingly fast. If we look around us, we already notice amazing realities. Mobile payments and transfers are an example of the next wave of digital transformation. The country that currently leads mobile payments is not the United States or Germany – it is Kenya. China represented 1 percent of world e-commerce 10 years ago but now accounts for 42 percent.

These examples are not random datapoints. They are part of a trend that is reshaping the world. The economies of the emerging nations, whose population amounts to 85 percent of the world total, are growing at impressive rates that will boost their strength in the coming decades.

The stunning transformations the world has been watching in China are a showcase of what will gradually happen in many other emerging nations around the world, big and small, over the rest of this century. This is just the beginning of a truly global change. Looking at present day China is one way we can foresee the world of the future.

The G7 reflects a world economy typical of the 20th century. But the G20 is a prelude of the new global economics of the 21st century. In some way, the G7 is a residue from the past and the G20 is an anticipation of the future.

Nevertheless, the G20 is merely a transitional grouping. In a world with around 200 countries, a massive number of them will also emerge economically in the foreseeable future. Over time, we will have a G30, a G50. What we see now is not the future, but a major step towards it. The dominance of the G7, despite its current relevance, will fade gradually. The G7 members are already members of the G20, and they don't control power as they did in the past – now they must share it.

The 21st century will, in substantial ways, be the century of what, at present, we call "developing and emerging economies". The world is morphing into a new architecture of economic power and a new geography of wealth and markets. It will be a bit confusing. But it is inevitable.

(Pedro Jordão is an expert on international business and economics based in Portugal)