Analysis: "The BRICS countries are changing the G7 - welcome to an increasingly divided world"

We are facing a shift that we have not seen for several generations. That's what Martin Granberg at Priceindex writes in an analysis of the macroeconomic situation - where a growing gap between the BRICS countries, led by China and Russia, on the one hand, and the West on the other is paving the way for a world full of unrest and conflict. "Everyone is forced to choose a side", he writes.

"As the game pieces are moved and everyone is forced to choose a side, the new normal now and in the foreseeable future will be an increasingly uncertain and divided world," writes Martin Granberg, chief strategy officer at Priceindx.

How will the world change and what is happening beneath the surface?

Covid-19 with all that it entailed, the aftermath of a broken logistics chain and finally the war in Ukraine has forced a large part of the world's countries to choose a side, but what is happening under the surface is complex.

The last few years have shown that our advanced and just-in-time based system with goods from the other side of the earth has not always worked as intended. With a raging war in Europe and an increasingly aggressive China in the South China Sea, the supply of goods faces further challenges and major changes that are not visible on the surface. Throughout history, trade and shared economic interests have proven to be the recipe for peace.

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In the USA, for a few years, people have already been working on making a shift, they talk about "onshoring", that is, moving production home and back from low-wage countries. Even if you don't always get all the way there, both large and smaller companies move their production to other countries in Asia than China, there is a clear exodus from China as American companies lead.

"Pandemin only helped to remove the patch faster and made companies see the unsustainability of putting most of their eggs in one basket"

The possibilities in the USA with domestic production look somewhat different from what they look like in Sweden and the Nordic countries, or Europe for that matter, but the shift is also happening here and there is a lot of talk.

If you just move your production to another country in Asia, it is difficult to get around the problems that will arise, not if, but when a conflict breaks out in the South China Sea. Therefore, more and more European companies are also considering moving parts of their operations closer to their market in the coming years. The pandemic only helped to remove the patch faster and made companies see the unsustainability of putting most of their eggs in one basket.

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This year, Mexico has overtaken China as the USA's largest trading partner, and June turned out to be a month in which China's exports fell drastically. Inflation and weaker economies in the West affect purchasing power, which slows down China's growth. China has been forced to write down its GDP growth, which is unusual.

In parallel with this, China and Russia are driving the BRICS cooperation strongly forward and a majority of countries have submitted or shown an interest in joining the cooperation, which became news last week. The existing BRICS countries have now during the year (2023) also overtaken the GDP of the G7 countries. It is big but has barely received any media space.

"The new currency comes together with BRICS' future economic muscle, creating a shift that we have not seen for several generations"

Those who want to join BRICS include a number of OPEC countries, which have historically sold their oil in US dollars and thereby created stability and credibility for the currency, which in turn has given the USA great economic benefits. By the fact that the BRICS are now seriously starting to plan for an alternative currency backed by gold and other physical resources, the new currency together with the future economic muscle of the BRICS will create a shift that we have not seen for several generations where the US and the dollar are no longer self-evident.

This, in turn, will make the future BRICS countries even less sensitive to economic sanctions from the West, which has been an important driving force for the US in particular to push its will. Through this and less dependence on the West as a trading partner, mainly China, which we see through the ongoing "onshoring", it creates a greater risk of military conflicts, since there is less to lose due to fewer common economic interests.

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At the same time as Russia has started a war in Europe and there China is acting increasingly aggressively against its neighbors in the South China Sea. Everyone is gearing up and choosing a side, many leaning heavily against the US and on the promises they hope will apply in the future as well.

As the game pieces are moved and everyone is forced to choose a side, the new normal now and for the foreseeable future will be an increasingly uncertain and divided world.

There are a number of things you can and should do, what do you do?

Martin Granberg,
chief strategy officer, Priceindx