Key yardstick shows U.S. still top economy

Call it another false alarm in the China-overtaking-the-United States saga. Notwithstanding the latest estimates from the International Monetary Fund (IMF), the US, the world’s largest economy, is still, well, numero uno.

China’s gross domestic product (GDP) will climb to $17.6 trillion this year, while the US grows to $17.4 trillion, IMF projections showed on Thursday. One major caveat: The comparison is based on purchasing power parity (PPP), which uses exchange rates that adjust for price differences of the same goods between nations.

“The US remains the biggest by the more common, more widely accepted and, in our view, more useful measure,” said David Hensley, JPMorgan Chase & Co. director of global economic coordination in New York. As for PPP, “it’s not quite the real thing.”

The PPP, used to differentiate how far money goes in each country, hardly reflects where the two nations currently stand vis-à-vis each other. Consider this: In 2013  US GDP was at $16.8 trillion, way ahead of China’s $9.24 trillion before adjusting for inflation, which is the more commonly known measure of an economy’s size, World Bank figures show.

By looking at a PPP comparison, especially for developing nations, “you really exaggerate the importance of these economies,” because it misses the command that each has over the world’s resources and its influence over global activity, Hensley said. A preoccupation with this “competition or foot-race” captures little of the reversal in fortunes under way, he said.

Reversal of fortune

“EMERGING-market economies had their day in the sun in the 2000s, and China was the epitome of those go-go days,” he said, as growth forecasts were often revised up, policies were aimed at boosting their economies and their markets offered a lot of potential. “Developed economies by comparison looked pretty stodgy,” Hensley said.

“The view we encounter now is a more sobering reassessment,” he said, adding that he prefers projections based on market-exchange rates. “The US has cleaned up its act. China still has a lot of work to do.” Adjusted for population, China falls way behind even using the PPP data, and the US is also no longer the king of the world. China ranks 86th in PPP GDP per capita, up 29 spots from a decade ago, while the US slips one notch to 10th, according to Bloomberg calculations based on IMF data. The top 3 by this metric are Qatar, Luxembourg and Singapore. Bloomberg News


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