The United States has had the world’s largest economy for more than 140 years, but according to new numbers from a World Bank project, that run will likely come to an end this year.
The World Bank’s International Comparison Project (ICP) recently released comparison GDP estimates for the world’s economies for 2011, and found that China’s economy had caught up so close to the U.S. its economy is likely to surpass the U.S.’s this year.
That’s far sooner than economists had been expecting; the OECD estimated China would become the world’s largest economy in 2016; China itself pegged 2019 as the year it would happen. The Centre for Economics and Business Research put it as far off as 2028.
Like many estimates of GDP, the ICP data adjusts the numbers for “purchasing power parity” (PPP). Because exchange rates fluctuate constantly, measuring the actual (or “nominal”) GDP can be misleading. PPP adjusts the numbers to reflect what people in a given economy can actually afford.
In updating its numbers, the ICP found it had underestimated the purchasing power of people in developing countries. Once it adjusted the numbers for the higher purchasing power, it found China’s economy to be 87 per cent as large as the U.S.’s in 2011.
Given that China is expected to grow 24 per cent between 2011 and 2014, and the U.S. economy is expected to grow about 7.5 per cent, that would mean China will overtake the U.S. this year.
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World's Largest Economies
The U.S. has had the world’s largest economy since 1872, when it overtook the U.K., the Financial Times reports.
“The findings will intensify arguments about control over global international organizations such as the World Bank and IMF, which are increasingly out of line with the balance of global economic power.”
There's one group that seems utterly unhappy about these numbers, and that's the Chinese government. The country's National Bureau of Statistics rejected the World Bank report, despite having taken part in the study.
The bureau “expressed reservations” about the study’s methodology and “did not agree to publish the headline results for China,” AP reports.
China may fear added pressure to sign on to trade or climate agreements if it's seen as the world's largest economy, AP speculates.
India ranked as the world’s third-largest economy, up from tenth place the last time the ICP issued its report, in 2005.
The ICP’s new estimates mean that Canada’s economy doesn’t rank as highly as it once did. The new numbers place Canada in 15th spot. Most other current estimates place Canada in 13th or 14th place.
Canada used to have a top-10 economy, hence its membership in the G7 economic club. But a number of developing countries have raced ahead in recent years, including Brazil, India and South Korea.