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May 2nd, 2014 at 9:49 am

China will become the world’s largest economy by the end of 2014

economic primacy

China was the world’s largest economy until 1890 before America surpassed it. By the end of 2014 China is on track to reclaim its crown.

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Comparing economic output is tricky: exchange rates get in the way. Simply converting GDP from renminbi to dollars at market rates may not reflect the true cost of living. Bread and beer may be cheaper in one country than another, for example. To account for these differences, economists make adjustments based on a comparable basket of goods and services across the globe, so-called purchasing-power parity (PPP). New data released on April 30th from the International Comparison Programme, a part of the UN, calculated the cost of living in 199 countries in 2011. On this basis, China’s PPP exchange rate is now higher than economists had previously estimated using data from the previous survey in 2005: a whopping 20% higher. So China, which had been forecast to overtake America in 2019 by the IMF, will be crowned the world’s pre-eminent country by the end of this year according to The Economist’s calculations. The American Century ends, and the Pacific Century begins.

Via The Economist

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