China just overtook US as the world's largest economy, IMF says
Sorry, America. China just overtook the US to become the world's largest economy, according to the International Monetary Fund.
Chris Giles at the Financial Times聽. He also alerted us back in April this year that it was聽.听
Basically, the method used by the IMF adjusts for purchasing power parity,聽.
The simple logic is that prices aren't the same in each country: A shirt will cost you less in Shanghai than San Francisco, so it's not entirely reasonable to compare countries without taking this into account.听Though a typical person in China earns a lot less than the typical person in the US, simply converting a Chinese salary into dollars underestimates how much purchasing power that individual, and therefore that country, might have.听聽is a great example of these disparities.
So the IMF measures both GDP in market exchange terms, and in terms of purchasing power. On the purchasing power basis, China is overtaking the US right about now and becoming the world's biggest economy.
We've just gone past that cross-over on the chart according to the IMF. By the end of 2014, China will make up 16.48% of the world's purchasing-power adjusted GDP (or $17.632 trillion), and the US will make up just 16.28% (or $17.416 trillion).
聽It's not all sore news for the US. It'll be some time yet until the lines cross over in raw terms, not adjusted for purchasing power. By that measure, China still sits more than $6.5 trillion lower than the US and isn't for quite some time:
