Last week, asking the question “Who owns the largest economy in the world?” – would have resulted in quite the obvious answer: America.
Moving into next week, however, the answer to that question will be perhaps less clear.
That’s because America just officially became No. 2.
“The International Monetary Fund recently released the latest numbers for the world economy. And when you measure national economic output in “real” terms of goods and services, China will this year produce $17.6 Trillion — compared with $17.4 Trillion for the U.S.A,” Brett Arends reports for MarketWatch.
To put the significance of this economic shift in a little perspective, the world has ultimately been dominated by the U.S – and its economy – since 1945. The U.S dollar acts as the world’s reserve currency, controlling the value of almost all other currencies around the world.
This weekend’s shift also means that China now accounts for over 15-percent of the global economy. “China now accounts for 16.5% of the global economy when measured in real purchasing-power terms, compared with 16.3% for the U.S,” Arends notes.
As for how all this is calculated?
“These calculations are based on a well-established and widely used economic measure known as purchasing-power parity (or PPP), which measures the actual output as opposed to fluctuations in exchange rates.”
Describing the recent change in world economic power as a “geopolitical earthquake with a high reading on the Richter scale,” Arends highlights that China’s overtaking of the U.S “will change almost everything in the longer term,” with the potential short-term ramifications expected to be less noticeable.