World’s Largest Economy
The Financial Times (FT), by quoting a report by the International Monetary Fund (IMF), reported on Oct. 8 (local time) that the gross domestic product (GDP) of China is estimated to be US$17.6 trillion this year, based on purchasing power parity (PPP), beating the US$17.4 trillion of the US.
PPP means the quantity of goods and services which can be purchased with one unit of a certain currency. Different from per capita GDP, which is calculated by dividing the GDP by the total population, GDP based on PPP indicates the actual purchasing power, as this method assumes the same price level and foreign exchange rate for each country.
FT projected, “In the 1980s, the size of the Chinese economy was only 10 percent of the U.S. Through remarkable growth afterwards, China finally surpassed the U.S. The Chinese economy will become 20 percent larger than the U.S. economy by 2020.”
However, the FT also pointed out, “It is true that the Chinese economy is the largest in the world, but Chinese people are not ‘rich’ at all. The per capita GDP of China is only 25 percent of the U.S.”
Furthermore, IMF analyzed that the Emerging 7 (E7), seven major countries in emerging economies, have stronger purchasing power than the Group of 7 (G7), the seven major advanced countries. According to the report of IMF, the PPP-based GDP of the E7 is US$37.8 trillion in total, greater than the US$34.5 trillion of the G7. The E7 consists of BRIC -- Brazil, Russia, India, and -- as well as MINT -- Mexico, Indonesia Nigeria, and Turkey.
The member countries of the G7 are the U.S., Canada, France, Germany, Italy, Japan, and the U.K.
The FT stressed that half of the world’s top twenty countries are in emerging economies and Indonesia became the ninth-largest economy in the world, beating the U.K. Nigeria jumped up ten ranks to become the 20th largest economy after GDP calculation criteria were changed.
On the other hand, Wall Street commented on this announcement of IMF by saying, “Considering the realistic aspects, the U.S. is still the largest economy in the world.”
David Hensley, manager of international economics at JP Morgan Chase, explained at the interview with Bloomberg, “As the GDP based on PPP is quite distant from the reality, it is somewhat unreasonable to determine the world’s largest economy using this GDP.”