On Tuesday the International Monetary Fund released its latest World Economic Outlook. A striking new finding emerges: the seven largest emerging markets are now bigger, in gross domestic product terms, than the long established G7 group of industrialised nations, when measured at purchasing power parity (PPP).
A hypothetical new G7, comprising the BRICs — Brazil, Russia, India and China — and three of the so-called MINT economies – Mexico, Indonesia and Turkey — has a combined GDP of $37.8 tn (at purchasing power parity) compared to $34.5 tn for the old G7 — Canada, France, Germany, Italy, Japan, the UK and the US.
The new attempts to measure GDP also confirm that, in PPP terms, China is now the world’s largest economy, overtaking the US (as revealed by the FT in April). At market exchange rates, the US economy is worth $17.4 tn and the Chinese $10.4 tn. With an adjustment for relative prices, China’s economy moves up to first place, with a GDP of $17.6 tn.
PPPs attempt to capture the fact that a dollar will buy you more or less in different countries. A haircut in Shanghai will cost a lot less than one in New York, for example, but prices in the haircut market will not be equalised by international competition.
