Asia

U.S. To Lose Title As Largest Economy In The World For The First Time Since 1872

American and Chinese Money
The United States is set to lose its position as the largest economy in the world when China is expected to overtake it this year.  Originally, economists believed that China would not overtake the U.S. until 2019, but because of a new way to calculate purchasing power and greater than expected growth in the Chinese economy, China is on track to surpass the U.S. later this year.  From 2011-2014, the Chinese economy grew by 24%, whereas the United States grew by 7.6%.  This is the first time since 1872, when the United States overtook the United Kingdom in economic might, that the U.S. will not have the largest economy in the world.
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The US is on the brink of losing its status as the world’s largest economy, and is likely to slip behind China this year, sooner than widely anticipated, according to the world’s leading statistical agencies.

The US has been the global leader since overtaking the UK in 1872. Most economists previously thought China would pull ahead in 2019.

The figures, compiled by the International Comparison Program hosted by the World Bank, are the most authoritative estimates of what money can buy in different countries and are used by most public and private sector organisations, such as the International Monetary Fund. This is the first time they have been updated since 2005.

After extensive research on the prices of goods and services, the ICP concluded that money goes further in poorer countries than it previously thought, prompting it to increase the relative size of emerging market economies.

The estimates of the real cost of living, known as purchasing power parity or PPPs, are recognised as the best way to compare the size of economies rather than using volatile exchange rates, which rarely reflect the true cost of goods and services: on this measure the IMF put US GDP in 2012 at $16.2tn, and China’s at $8.2tn.

In 2005, the ICP thought China’s economy was less than half the size of the US, accounting for only 43 per cent of America’s total. Because of the new methodology – and the fact that China’s economy has grown much more quickly – the research placed China’s GDP at 87 per cent of the US in 2011.

For 2011, the report says: “The US remained the world’s largest economy, but it was closely followed by China when measured using PPPs.”

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