Editor’s note: If Hillary Clinton is successful in being elected President of the United States, she will join Andrea Merkel, Chancellor of Germany and Theresa May, Prime Minster of Great Britain as leaders of 3 of the world’s top 5 economies.
GUEST BLOG – By Prableen Bajpai, CFA (ICFAI) -- The inequitable distribution of income is present at the global level where the nominal gross domestic product (GDP) of the top 10 economies adds up to 65% of the world’s economy, and the top 15 economies add up to 75%. The remaining 172 countries constitute only 25% of the world’s economy.
Here’s the list of the top 10 economies based on the criteria of GDP, current prices (U.S. dollars) which is simply known as nominal GDP. The rankings differ if the same list is prepared using the GDP based on purchasing-power-parity (PPP). As a general rule, developed countries have a smaller gap between their nominal GDP (i.e., current prices) and GDP based on PPP. The difference is greater in developing countries, which tend to have a higher GDP when valued on purchasing-power-parity basis. This list is based on IMF data, which is updated twice annually.
1. United States
The U.S. economy is the largest in the world in terms of nominal GDP (measured at current prices in U.S. dollars). The $17.41 trillion U.S. economy is approximately 22.44% of the gross world product. The United States is an economic superpower that is highly advanced in terms of technology and infrastructure and has abundant natural resources. However, the U.S. economy loses its spot as the number one economy by a slight margin to China when measured in terms of GDP based on PPP. In these terms, China’s GDP is $17.63 trillion and the U.S. GDP is $17.41 trillion. However, the U.S. is way ahead of China in terms of GDP per capita (PPP) - approximately $54,678 in the U.S. versus $12,893 in China.
China has transformed itself from a centrally planned closed economy in the 1970s to a manufacturing and exporting hub over the years. The Chinese economy is propelled by an equal contribution from manufacturing and services (45% each, approximately) with a 10% contribution by the agricultural sector. The Chinese economy overtook the U.S. economy in terms of GDP based on PPP. However, the difference between the economies in terms of nominal GDP remains large. China is currently a $10.35 trillion economy and has been growing at around 7% in the recent years, although that growth is starting to slow down.
Japan’s economy ranks third in terms of nominal GDP, while it slips to fourth spot when comparing the GDP by purchasing-power-parity. The economy has been facing hard times since 2008, when it was first showed recessionary symptoms. Though the government’s stimulus packages have helped the economy recover a bit, the massive earthquake in 2011 gave the fragile economy another jolt. Economic growth has hovered between 0.5–2% in recent times. The nominal GDP of Japan is $4.77 trillion, its GDP (PPP) is $4.78 trillion, and its GDP (PPP) per capita is $37,683.
5. United Kingdom
France, the most visited country in the world, is the sixth largest economy with a nominal GDP of $2.83 trillion. Its GDP in terms of PPP is around $2.59 trillion. France has a low poverty rate and high standard of living, which is reflected in its GDP (PPP) per capita of $40,445. The country is among the top exporters and importers in the world. France has experienced a slowdown over the past few years and the government is under immense pressure to rekindle the economy, as well as to combat rising unemployment.
Brazil with its $2.24 trillion economy, it is the seventh largest economy by nominal GDP. The Brazilian economy has developed services, manufacturing, and agricultural sectors with each sector contributing around 68%, 26%, and 6% respectively. Brazil is a part of BRIC and ahead of all other South American economies. The Brazilian GDP measured in purchasing-power-parity is $3.07 trillion, while its GDP per capita (PPP) is $15,153. However, the country has 21% of its population living below the poverty line.
Italy’s $2.13 trillion economy is the world’s eighth largest in terms of nominal GDP. Italy is among the prominent economies of the eurozone, but it has been impacted by the crisis in the region. The economy suffers from a huge public debt estimated to be about 133% of GDP, according to the CIA World Factbook. The economy is also facing high unemployment and deteriorating economic growth. The government is working on various measures to boost the economy that has contracted in recent years. The GDP measured in purchasing-power-parity for the economy is estimated at $2.06 trillion, while its per capita GDP (PPP) is $34,455.
Russia’s domestic consumption amid a politically stable atmosphere has paved the way for economic growth in the country. The country has transformed itself since the fall of the Soviet Union in 1991 from a centrally planned economy to a more market-based open economy. Russia’s $2.05 trillion economy is currently facing a crisis as a result of imposed sanctions and a steep fall in oil prices. Russia’s economy in terms of purchasing-power-parity is estimated at $3.56 trillion, while its GDP per capita is $24,764.
India ranks third in GDP in terms of purchasing-power-parity ($7.28 trillion), while its nominal GDP ($2.04 trillion) places it in the tenth spot. The country’s high population drags its GDP (PPP) per capita down to $5,778. India’s GDP is still dependent on agriculture (17%), compared to western countries. However, the services sector has picked up in recent years and now accounts for 57% of the GDP, while industry contributes 26%. The economy’s strength lies in a limited dependence on exports, high saving rates, favorable demographics, and a rising middle class. India recently overtook China as the fastest growing large economy.
The Bottom Line
Some other economies that are a part of the “trillion-dollar” club and have the potential to make it to the top 10 going ahead are Canada ($1.79 trillion), Australia ($1.48 trillion), South Korea ($1.45 trillion), Spain ($1.4 trillion), and Mexico ($1.3 trillion).
Rankings based on IMF’s database, GDP estimates, and projections. Select data is from the CIA World Factbook.
Source for this post: http://www.investopedia.com/contributors/53487/
About the Author:
Prableen Bajpai, CFA (ICFAI) is the Founding Director at FinFix; an enterprise in India, primarily engaged in financial research, reports, training and spreading financial literacy while striving to provide counselling to the economically less privileged.
In her previous assignment, Prableen was heading the Research at Vantage Wealth Management Solutions Pvt. Ltd., managing the compilations of the monthly compendium moneytree®, meant to educate investors on stock markets and investments.
She has also taught Investment Analysis and Macroeconomics to business students at the Royal Thimphu College (RTC), Bhutan. Prableen has been writing about investing, stock markets, economy, and personal finance for almost a decade. Prableen is a Chartered Financial Analyst (CFA) from ICFAI, holds a masters degree in Economics and is pursuing her CFP® certification.