A recent MarketWatch column highlights an announcement from the International Monetary Fund (IMF), predicting that China’s economy will overtake the U.S. by 2016. This is significantly earlier than other predictions, but the IMF has presented a strong case.
Because China artificially undervalues it’s currency and simply because comparing exchange rates can be faulty, the IMF analysis compared GDP and Purchasing Power Parities (PPP) between China and the U.S.
According to the IMF’s forecast, China’s economy will grow by nearly $6 trillion between now and 2016. By comparison, the U.S. economy will only grow by about $3.6 trillion. This difference will be enough for China’s share of the world economy to reach 18 percent. The U.S. share of world output would be 17.7 percent, the lowest since the U.S. overtook Great Britain’s economy in the 1890s.
Of course, a lot can happen in five years and China’s future is far from certain. But regardless of specific dates, this analysis of the direction of our economies should be a reality check for Americans, particularly in light of the recent budget and financial controversy in Washington.