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11 June 2021updated 04 Sep 2021 1:19pm

How the G7’s economic power has diminished

As the group's dominance of the global economy shrinks, is it time to reinvent its membership?  

By Nicu Calcea

The G7 has long presented itself as a group of the world’s wealthiest countries, which together account for around half of global GDP. This allows its members – Canada, France, Germany, Italy, Japan, the UK and the US – to claim legitimacy when they make decisions about some of the biggest issues affecting humanity.

Figures from the World Bank show that the G7 collectively accounted for nearly 70 per cent of global nominal GDP in the 1960s, losing very little ground until the 1990s. But its economic dominance has since wavered – falling to just 46.3 per cent in 2019.

That figure is even lower when GDP is adjusted to account for differences in the purchasing power of countries’ currencies, with the group accounting for just 32 per cent of the world’s purchasing power parity (PPP) GDP.

 

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Much of the reason behind the G7’s shrinking grip on the world economy is the rapid rise of developing economies, such as Equatorial Guinea, whose nominal GDP became nearly 18 times bigger in the 20 years to 2019, or Angola, where the economy has ballooned to over 18 times the size it was in 1999.

China, one of the fastest-growing countries this century, went from a GDP of just over $1trn in 1999 to $14.3trn 20 years later. It is now the second-largest economy in the world, behind only the US.

The G7’s economic growth has fizzled out
Countries by GDP growth between 1999 and 2019

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G7 economies are also expected to take longer to recover from the economic hit of the pandemic compared to many developing nations. Projections from the OECD show that France may not recover to its pre-pandemic GDP per capita level until the third quarter of 2022, with the UK, Italy and Canada reaching the same point in the second quarter of next year. China, meanwhile, had already recovered by the second quarter of 2020, with Turkey following a quarter later.

Estimates from PwC show that the Emerging Seven (E7) – comprising China, India, Brazil, Mexico, Russia, Indonesia and Turkey – may go from being equivalent to half of the G7’s combined economies in 1995 to double the G7 in 2040.

The G7 thus no longer includes the world’s biggest economies, and is unlikely to ever do so again in its current form. Nevertheless, it still represents the biggest liberal democracies and is arguably still hugely influential on the world stage.

This year, the UK has also invited South Korea, India, Australia and South Africa to the weekend’s summit, signalling that there is room for a potential expansion. Whether the group maintains its relevance will largely depend on whether it can renew itself. 

[See also: The UK was the only G7 member to cut foreign aid last year]