We begin this week’s newsletter by examining the challenges and potential of the BRICS nations in the global arena. Next, we turn our focus to the implications of aging populations and technological advancements on the global economy. We then explore the complex relationships between the Global South and international lending institutions. Finally, we conclude by taking a look at the ongoing global energy shift towards cheaper and more sustainable sources.

BRICS’ Limited Impact

Can BRICS Finally Take On the West? 

Kieth Johnson, Foreign Policy

The BRICS Still Don’t Matter 

Jim O’Neil, Project Syndicate

Putin’s plan to defeat the dollar 

The Economist

The BRICS, initially coined by Jim O’Neill in 2001 to describe the world’s major emerging economies, has since transformed into a political bloc aiming to challenge Western dominance. South Africa joined the original BRIC countries in 2009, and the group expanded in 2023 to include Egypt, Ethiopia, Iran, and the UAE, as part of a broader effort to establish a “truly multipolar world order.” However, internal divisions and a lack of cohesion pose significant challenges, as the bloc consists of nations with divergent political ideologies and economic interests. For instance, Brazil and India, which favor non-alignment, are resisting Russia’s push to make BRICS more overtly anti-Western, a stance strongly supported by China. Another challenge lies in reducing dependence on the US dollar in global trade, with efforts like the BRICS Bridge financial payments system struggling to gain traction due to concerns about Chinese dominance. Additionally, despite its ambitions to reform global institutions, the bloc has made limited progress, and the New Development Bank (NDB), founded in 2015 as an alternative to Western lenders, remains far smaller than institutions like the World Bank.

Despite these challenges, the BRICS have some opportunities to exert greater influence on the global stage. The bloc represents a significant portion of the world’s population and economic output, and its members share a common desire for a more multipolar world order. The expansion of the BRICS to include new members could potentially increase its economic and political clout. Moreover, the growing dissatisfaction with the US dollar’s dominance, even among some US allies, could create an opening for the BRICS to promote alternative currencies and payment systems. The success of the BRICS will depend on its ability to overcome internal divisions, develop concrete proposals for reforming global governance, and offer viable alternatives to the existing financial system. Whether the BRICS can capitalize on these opportunities and achieve its ambitious goals remains to be seen.

Global Economic Uncertainties and Opportunities

What a World Growing Older Fast Means for Investing 

Alice Atkins and Sujata Rao, Bloomberg

The Global Economy’s Hidden Weaknesses 

Eswar Prasad, Project Syndicate

TSMC says ‘insane’ AI demand is ‘real’ and a boon for chip giant 

Cheng Ting-Fang and Lauly Li, Nikkei

The global economy currently presents a complex picture for investors, marked by both opportunities and challenges stemming from demographic shifts, regional disparities, and technological advancements. While the US enjoys robust growth fueled by strong domestic demand and falling inflation, other major economies like Germany and China face headwinds. Germany grapples with high energy costs, stagnant productivity, and competition from China, while China contends with deflationary pressures arising from weak domestic demand. The eurozone as a whole is experiencing lackluster growth and falling inflation, prompting the European Central Bank to continue cutting interest rates. This divergence in economic performance creates uncertainty for investors, particularly regarding the trajectory of interest rates and bond yields. The aging populations in developed countries like the US, Italy, and Germany pose further challenges, potentially leading to increased government spending on healthcare and pensions, thereby exacerbating public debt concerns and impacting the attractiveness of long-dated bonds.

Amidst these uncertainties, certain trends offer potential investment opportunities. The burgeoning field of artificial intelligence (AI) is experiencing “insane” demand, according to Taiwan Semiconductor Manufacturing Co. (TSMC), the world’s largest contract chipmaker. TSMC expects AI chips for server-related applications to account for 14% to 16% of its revenue in 2024, with full-year revenue projected to increase by nearly 30%. This surge in AI demand, coupled with the ongoing shift towards electric vehicles (EVs), presents promising prospects for investors in technology and related sectors. The demographic shift, while posing challenges for government finances, also creates opportunities in sectors like healthcare and infrastructure. Investors seeking to navigate this complex landscape may wish to consider strategies that account for inflationary concerns, regional disparities, and the long-term implications of demographic shifts. This might involve diversifying portfolios away from traditional bond-heavy allocations and exploring investments in equities, commodities, and infrastructure projects with inflation-linked revenues. Additionally, carefully assessing countries with favorable demographics, strong growth potential, and attractive investment environments, such as India and Indonesia, could yield significant returns.

The Global Debt Crisis

The IMF Has Lost Its Way 

Andres Arauz, Foreign Policy

The World Bank Is Failing and Needs a Restart 

Paul Collier, Foreign Policy

The Common Denominator Behind Africa’s Crises 

Howard. W. French, Foreign Policy

China’s Central Bank Swap Lines Are Fueling Global Debt Problems

Barron’s

The relationship between the Global South and international lending institutions, particularly the IMF and World Bank, is fraught with tension due to policies critics argue perpetuating economic distress. IMF practices, such as austerity measures and surcharges on extended borrowing, are considered by some to lead to worsened poverty, as seen in Argentina and Kenya, despite reforms aimed at reducing these burdens. The World Bank faces similar criticism for allegedly adjusting poverty metrics to mask stagnating growth in regions like Africa and Central Asia. Meanwhile, China’s People’s Bank has emerged as a significant player in global lending through its Belt and Road Initiative and long-term currency swaps, though the lack of transparency complicates debt monitoring and adds to the challenges these institutions face. This growing lending profile of China comes with the need for China to adhere to global lending standards to ensure sustainable debt management for states in the Global South.

Looking ahead calls for reform are growing louder as developing nations seek more equitable support from these global institutions. Proposals such as eliminating IMF surcharges, issuing Special Drawing Rights (SDRs) for unconditional support, and investing the IMF’s substantial unused cash into green bonds for climate projects in Africa and Latin America could provide much-needed relief and foster sustainable development. However, significant resistance from wealthier nations with substantial voting power in these institutions hampers progress. In parallel, Africa’s recurring crises, often rooted in poor governance and service provision, have spurred civil society movements across the continent, pushing for stronger governance and accountability. Activists like Ghana’s Bright Simons emphasize the need for cross-border solidarity in civil society to build momentum for better governance and genuine progress. 

The Future of Energy?

World Set for Cheaper Energy on Shift From Oil and Gas, IEA Says 

Grant Smith, Bloomberg

Fossil fuels: Is a decrease in demand really in sight? 

 Perrine Mouterde, Le Monde

Saudi Arabia tightens its belt 

Andrew England and Ahmed Al Omran, Financial Times

The global energy landscape is undergoing a significant transformation, moving away from fossil fuels and toward electricity, driven by factors like technological advancements, climate change concerns, and geopolitical shifts. This transition, however, presents both challenges and opportunities. The International Energy Agency (IEA) predicts that global demand for fossil fuels will plateau this decade, marking a turning point in energy markets. This shift is largely attributed to the rapid growth of electric vehicles (EVs), particularly in China, which are projected to account for 50% of new car sales worldwide by 2030. The IEA, led by Executive Director Fatih Birol, believes this transition will usher in an “Age of Electricity” and lead to cheaper energy prices as surpluses of oil and gas emerge. While crude oil prices are expected to remain between $75 and $80 per barrel, this stability hinges on OPEC+ continuing to restrain output, potentially reaching a record spare capacity of 8 million barrels per day by 2030.

Despite the optimistic outlook from organizations like the IEA, the transition faces challenges. Some major oil companies, including BP, are reportedly scaling back their commitments to reducing oil and gas output. Financial institutions like Goldman Sachs Group Inc. also predict continued growth in oil demand through 2034, highlighting the uncertainty surrounding the pace of the energy shift. This transition also poses significant financial challenges, particularly for oil-dependent economies like Saudi Arabia. Despite ambitious plans to diversify its economy through initiatives like the Vision 2030 program, Saudi Arabia’s reliance on oil revenue remains high. Declining oil prices, coupled with the kingdom’s commitment to reducing its production by 2 million barrels per day, have put pressure on the government to re-evaluate its spending priorities. The Public Investment Fund (PIF), tasked with spearheading Saudi Arabia’s economic transformation, is now facing increased scrutiny to demonstrate returns on its investments, which total at least $40 billion annually within the kingdom. This need for fiscal prudence has led to a “re-calibration” of spending, with projects being scaled back or phased over longer periods. While Saudi Arabia maintains its commitment to achieving its Vision 2030 goals, the global energy shift necessitates a careful balancing act between pursuing economic diversification and managing its dependence on oil revenue.