G7 pretends it is the center of the world but it represents less and less of world's GDP
This article originally appeared at Business New Europe
The leaders of the G7 industrialised nations met in Berlin on June 7, but their decisions are becoming less and less relevant to the rest of the world as the centre of global economic gravity moves relentlessly east.
In 1990, the centre of the world's economic gravity – the sum of the wealth of every country weighed against each other and fixed to the geographic centre of each country – was located on the eastern seaboard of the US. Formerly the planet’s economic powerhouse, America's economic might has waned in proportion to the rise of the emerging markets in the last two decades. Thus the centre of gravity has been moving eastwards.
There was a spurt between 2005 and 2010, the boom years of Russia and China's economic transformation, before this trend slowed as the aftereffects of the 2008 global crisis hit emerging markets hard. As of today, the economic centre of gravity is to be found in the Mediterranean, according to a report released by Wealth-X, a research house that specialises in intelligence and marketing to the world's rich.
"In just the past 20 years, the number of high net worth (HNW) and ultra high net worth (UHNW) individuals globally has more than trebled," Marc Cohen, the author of the report and regional managing director for Europe for Wealth-X, wrote. "The past decade has seen a HNW wealth growth trend of over 7% per year. The trend also applies to the world’s UHNW population (those with net worth over US$30 million), who now account for .004% of the world’s adult population, and whose wealth has grown at 6.6% per year from 1992 to 2012.
The shift in wealth eastward is driven by the fact that many of these new super-wealthy are from emerging markets. Russia tops the world in terms of the likelihood of becoming a billionaire, with one person out of every million enjoying a 50/50 chance of becoming a billionaire in the last 20 years compared with zero chance in Germany, as it has not produced a new billionaire in two decades.
Emerging markets are the biggest new variable, says the report, but "increased entrepreneurship and business ownership, the rise of new technology and globalisation, as well as the democratisation and modernisation of wealth and power away from inheritance and ‘old money’ has also made a big difference,” Cohen adds.
The path traced out by the centre of gravity of wealth in the last two decades was moving from New York, the home to the richest of the rich in the 1990s, towards London, the new playground of the super-wealthy in the noughties. However, more recently the path has veered southwards as the wealthy in Southeast Asia, South America and Africa have started to count; the cities of Singapore, Hong Kong and even Dubai act on the centre of gravity like magnets.
"As North American fortunes declined, the centre of gravity began moving at around 10 times its historic speed. By 2010, the global centre of gravity of wealth was in the western Mediterranean. Since the crisis, the pace of movement has inevitably slowed. But it continues to move east, and slightly southerly, reflecting the continued rise of wealth in South East Asia and increasingly in South America and Africa," the report says. "Today, the centre of gravity is in the central Mediterranean, between the toe of Italy and coast of Tunisia."
As demonstrated by the centre of gravity, the wealthy today are spread equally across North America, Europe and Asia (approximately 30-35% in each). In terms of countries, the US remains the largest single country for millionaires, with just over 6mn millionaires, of which 69,000 are UHWN. But the distribution of wealth is much more evenly spread than it was two decades ago, with about 30-35% of the global rich living in each of North America, Europe and Asia.
China leads amongst the emerging markets in terms of the number of millionaires (third overall), and it is well ahead in terms of the rate that it is adding new millionaires. Russia is next among the leading emerging markets in terms of the number of millionaires (13th), and trails only China and Brazil in terms of the pace of adding new ones; the number of rich tripled in Russia and Brazil over the last two decades and quintupled in China over the same period.
And the shift to the east of the global centre of economic gravity has been tracked by geopolitics. The G7 summit just held used to be called the meeting of the World's “rich nations”. But in 2014 emerging markets became worth more than the developed world in terms of their share of Global GDP, according to Jan Dehn, head of research for Ashmore Investment Management citing the International Monetary Fund (IMF) data. According to the IMF’s April 2014 “World Economic Outlook” analysis, the emerging market’s share of global GDP hit 50.4% in 2013, up from 31% in 1980.
In response to Russia's showdown with the EU and US over Ukraine's future, the Kremlin has accelerated its "pivot to the east" and the BRIC acronym that started life as an investment bank marketing strategy has transformed into a political reality in the last decade.
As the G7 leaders sat down to discuss global affairs in Germany, the Russian Duma’s chairman of the International Affairs Committee, Alexey Pushkov, boasted that Russia’s BRICS presidency (South Africa has been added) shows the failure of plans to isolate Russia and added, somewhat implausibly at least in the short term, that the BRICS nations joint GDP will soon overtake those of the combined G7 countries. "The West was very sceptical about BRICS. Sceptics are now confounded. BRICS will soon surpass G7 in terms of GDP," Pushkov wrote on Twitter.
The point has not been lost on Western political commentators. As the G7 meeting got underway, Ian Bremmer, president and founder of Eurasia Group, tweeted this map with the comment: "The World is isolating Russia. As long as the World looks like this."