China has surpassed the United States as the largest economy in the world, according to a report from the International Monetary Fund (IMF). This may seem like unsettling news for the Western superpower, but is the report all that accurate?
It's all a matter of perspective, really.
One method uses market exchange rates, converting the Gross Domestic Product (GDP) of a country into a common currency and comparing it to other currencies. If this benchmark is used, the U.S. is still clearly the global leader.
However, if another measure that economists are familiar with is applied, the Purchasing Power Parity (PPP), then China leads the GDP growth.
Similarly, according to Tim Callen of the IMF, the wealth of Canada and Switzerland overtake each other depending on which market rates are applied.
"Using market rates, per capita income in Switzerland exceeds that in Canada, but when PPP rates are used, the situation is reversed," he wrote.
The main reason the IMF uses PPP to measure GDP is because market rates tend to fluctuate and produce large movements in short periods of times. PPP, on the other hand, is a more reliable, more stable measure over time.
A drawback with PPP, which is why some economists do not prefer it, is they can be difficult to read. It relies on surveys that are taken at infrequent intervals. Rates have to be estimated for intervals in between survey dates and for countries whose data is missing.
Other economists also note that when the numbers are adjusted to account for China's population, even PPP data makes it fall far behind. The same rings true for the U.S. In fact, by these adjusted metrics, Bloomberg reports that Qatar, Luxembourg and Singapore would top the global economy list.
Clearly the market is very volatile, depending on what metrics are used to account for currency conversion. However, most experts agree that although some numbers indeed suggest that China has already surpassed (or will soon surpass) the U.S. market, it's still agreed that China has to work within its own borders to ensure its own prosperity. The U.S. already has a stable grasp on the international markets; this allows it to keep its spot as the world's greatest economy for the foreseeable future.
