China already number one, says the IMF

Tim Colebatch

If the International Monetary Fund is right, we can stop speculating about when China will overtake the United States to become the world’s biggest economy. It’s already happened.

The IMF’s new data set, released in April with its latest World Economic Outlook report, estimates that in real terms (corrected for price differences, that is), China’s output in 2014 edged ahead of the United States for the first time. There was little between them: assuming its national accounts are correct, China produced goods and services worth US$17.6 trillion, just $198 billion more than US production of US$17.4 trillion.

But if China’s national accounts exaggerated real growth in 2014 for political reasons, as some suspect, the United States could still be the world’s biggest economy. And if China’s stock market crash presages a bust ahead, it is too soon to say for sure that global economic leadership has changed hands.

The IMF’s future projections assume that China will settle down to a growth rate of 6 per cent while the United States decelerates towards 2 per cent. If that’s right, China will have left its rival way behind by 2020. But, as the events of recent days show, that’s a big if.

The IMF’s latest data set incorporates far-reaching changes to estimates of global GDP based on new estimates of relative prices around the world, prepared by the World Bank’s International Comparison Program, or ICP. The program’s goal was to work out, as best it could, a common measure of buying power in different countries. As an indicator of average prices, the Economist magazine’s Big Mac index compares how much it costs to buy a Big Mac in different countries; the World Bank team does the same thing, but with a vastly wider range of goods and services, sampled at a wider range of locations.

The article’s full-text is available on the website of Inside Story

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