As a result, in US$ at current market prices, the UK’s GDP is forecast to be 13% lower in 2017 than it was in 2015. A clear example of this effect is the fall in the value of sterling that followed the UK vote to leave the EU. However, it can lead to volatility in GDP measured in US$ due to short-term exchange rate movements (rather than from economic growth). Market exchange rates make for easy and transparent conversion, and are easily understood. On this measure, China is the world’s largest economy – 15% larger than the US in 2016.Īdvantages and disadvantages of each measure For instance, India’s GDP in US$ is almost 4 times bigger using PPP instead of market exchange rates. This is because many developing countries’ GDP are a lot higher in PPP terms than under market exchange rates because of the lower price levels in their economies. Using PPP exchange rates, the UK is the world’s 9th largest economy, with India, Russia, Brazil and Indonesia now also ahead of the UK. These PPP rates, in theory, would ensure that you could buy the same amount of goods and services in all countries for the original $100. This was then used to calculate PPP exchange rates between local currencies and the US$. For example, it reflects the fact that $100 can buy you more goods and services in Kenya than in the US.Ī massive study coordinated by the World Bank called the International Comparison Program calculated differences in price levels in almost 200 economies in 2011. PPP takes account of differences in price levels-and therefore purchasing power-in different countries. Instead of using market exchange rates, local currencies are converted into US$ using the concept of purchasing power parity (PPP). There is another approach to compare international rankings. This is why the UK is the 9th largest economy in the worldĪs you will have gathered by now, that’s not the end of the story. This league table is shown below, with the UK the world’s 5th biggest economy on this measure, just ahead of France but behind Germany, Japan, China and the US. Doing the same for the rest of the world allows us to rank the size of all economies. Using this method, the size of the UK economy in 2016 was $2,629 billion (all the data in this article is from the International Monetary Fund). What was it in US$? This is why the UK is the 5th largest economy in the worldĪn obvious way to convert this is to use market exchange rates-like those you use when going on holiday-to convert local currencies into dollars. The UK’s GDP in 2016 was £1, 940 billion. To be able to compare GDP internationally, you need to convert the value of GDP from local currencies into a common currency, which is usually the US$. When people talk about the size of an economy, they are usually referring to GDP: the total value of goods and services produced in a country. ![]() Fact checks like these are made possible with your supportĭonate now How to create a league table of world’s biggest economies
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