And the Largest Economy in the World is…

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The truth is that the classification of the largest economy changes according to how wealth is measured. It is GDP vs purchasing power. The size varies according to the way in which it is measured. The US economy is larger than China’s if compared to gross domestic product in current dollars and without the effect of inflation. But if the comparison is made by purchasing power parity, China surpasses the US. Economic forecasts released this week by the International Monetary Fund (IMF) include an update of the macroeconomic figures for 2016 of the 190 countries of the world that allows a classification by the size of their economies. The standard thermometer for measuring a nation’s wealth is the gross domestic product (GDP) measured in current dollars, so that they can be compared. Although there are small fluctuations in exchange rates, the large variations are due to the different rates of growth. According to this criterion, the United States would be the country with a more powerful economy: it would have a GDP of $18.5 trillion,  according to the statistics of the Fund. And it extends the advantage it had over China, the country with the second largest GDP in the world $11.4 trillion. The Asian giant has hit the brakes in recent quarters. His strategic plan to transform its economy from one productive model to another in which domestic demand has more weight, is choking its growth rates. That explains why the distance separating it from the US has widened. The main changes in this classification compared to last year are Russia and Mexico. If the Fund’s forecasts are met, the Aztec country descends two places in this ranking, to the 15th position, and is surpassed by Spain. While Russia, by contrast, rises two places to position 12 despite its economic crisis. India would be the country whose economy will advance the most in coming years in this particular ranking that measures the states with more wealth, according to IMF calculations. However, the listing does not imply that the citizens of one country are richer than another because high inequality can distort the average wealth. Among the countries with the smallest economy in the world are Micronesia, Palau, Marshall Islands, Kiribati and Tuvalu, most of these jurisdictions are small islands in Oceania. Classification varies without taking GDP into account and if purchasing power is used instead of it. When using purchasing power, the measurements eliminate the distortions that create different price levels in each country, especially taking into account the value of goods and services which do not participate in international trade. According to this criterion, China is in better condition than the United States. With the wealth that people accumulate in China, they could buy more goods because their prices are much lower. The Fund’s projections show hardly any changes in last years order. India, Japan and Germany, occupy the third, fourth and fifth places respectively. Iran is among the 20 largest economies in the world in purchasing power parity and its powerful oil industry brings great value.

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