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World economy smaller than previously estimated

New measure puts GDP in perspective, but world order remains similar

(SINGAPORE) The size of the world economy is apparently smaller than previously thought, according to new estimates of GDP from the world’s biggest statistical initiative.

But the global economic pecking order remains more or less the same, with the five biggest economies – the United States, China, Japan, Germany and India, in that order – accounting for almost half of world output.

New data from the International Comparison Program (ICP) by the World Bank and various partners put the value of global economic output at $55 trillion in 2005 US dollars, adjusted for purchasing power parity – or at least 15 per cent smaller than previous estimates.

The ICP produced estimates of purchasing power parities (PPPs) for 146 economies to take into account price levels in each economy.

Direct conversions of GDP into US dollars would not only be affected by exchange rate movements but the GDP values would be under- or over-stated by the currency’s purchasing power.

And even in nominal US dollars, the ICP’s estimate of 2005 world GDP, at US$44 trillion, is also almost 10 per cent smaller than earlier estimates.

Among individual countries, the new data amount to ‘more statistically reliable estimates’ of GDP and price levels of China and India, says the preliminary global ICP report released in Washington yesterday. ‘The previous, less reliable, methods led to estimates of their GDPs that were 40 per cent larger.’

Says Paul Cheung, director of the United Nations Statistics Division and a member of the ICP executive board: ‘The previous estimates overstate the true extent (of GDP) because they were based on really old data. These new data set a new benchmark for future use.’

And in PPP terms, the Asian economies (excluding high-income and oil exporting members) are now one-third smaller. But Asia still accounts for over 20 per cent of the world’s output.

In all, 12 economies account for more than two-thirds of the world’s output. The five developing (or ‘transitional’) economies – China, India, Russia, Brazil and Mexico – among the 12 account for more than 20 per cent of global output and over 27 per cent of world investment spending.

The US also accounts for the lion’s share of world investment spending, at 21 per cent. That’s closely followed by China with 18 per cent. The 10 biggest economies account for more than two-thirds of the world’s investment.

Other findings :

Collectively, the five richest economies – with per capita GDP ranging between almost US$45,000 and US$70,000 in PPP terms – account for less than one per cent of world output. The five are Luxembourg, Qatar, Norway, Brunei and Kuwait.

At US$41,478 in PPP terms, Singapore’s is not too far behind – and second highest in Asia, behind Brunei. In nominal US dollars, Singapore’s per capita GDP – and also Hong Kong’s – exceeds Brunei’s.

Another indicator of wealth and living standards is per capita consumption, which tracks what or how much households spend. By this measure, the five richest economies are Luxembourg, the US, Iceland, UK and Norway.

Also from the ICP is a measure called price level index – the ratio of a country’s PPP to its US dollar market exchange rate – which shows which economies are the most and least expensive. An index above 100 means that prices are, on average, higher than in the US.

The most pricey economies – no surprises – are Iceland, Denmark, Switzerland, Norway and Ireland, with indices ranging from 154 to 127. The US ranks 20th, lower than most other high-income economies.

Singapore’s price level index is only 65, but that is based on a 2005 exchange rate of 1.7. And Singapore’s GDP in PPP terms, according to the ICP, was US$180 billion in 2005.

The ICP – which collects price data for more than 1,000 goods and services, and involves a host of national, regional and global agencies – is said to be the most extensive and thorough effort ever to measure PPPs across countries.

 

Source: Business Times 18 Dec 07

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