- Posted by Jon Hellevig
- On April 14, 2016
- Comments 3
- Views: 24711
Fresh data from the IMF (International Monetary Fund) shows that Russia has retained its place among the World’s largest economies. In the 2015 ranking, it is now slightly behind Germany just as in the previous year.
China has drawn further ahead from the USA solidifying its lead as the world’s number one economy with 19.5 trillion (in dollar terms). The USA is behind with as much as 1.5 trillion, the size of the economy of Canada.
India is of the large economies the one that grew the most and reached the size of 8 trillion last year. After India comes Japan with 4.8tn, then Germany, 3.8tn, and Russia 3.5tn. (Traditionally, the World Bank data awards Russia a significantly higher GDP than what the IMF figures does, but the World Bank data for 2015 is not out yet).
Notwithstanding the above, somebody might want to lead you astray and claim that Russia’s economy is only the 13th biggest at a size of 1.2 trillion. Here’s the catch, the first set of figures is based on the purchasing power parity (PPP) whereas the second awarding Russia’s economy the far lesser size is based on a calculation by the nominal current USD/RUB exchange rate. The Russia bashers will surely want to refer to the latter.
The comparison of the size of the economies across the world on the nominal GDP currency rate is utterly wrong as it only reflects shortsighted speculative differences in the exchange rates. The PPP-method on the contrary determines the size based on the real output of a country. Basically, the method is to compare how much a U.S. dollar fetches in different countries, and then to adjust the nominal GDP with the coefficient thus derived. (As the USD, is the currency of comparison, the nominal GDP and the PPP GDP are by definition always the same for the USA).
For example, you can compare the purchasing power by comparing how much bread or meat you can buy for 10 dollars in the various countries. After the sharp devaluation of the ruble, you got 50 to 60 percent less dollars for your rubles. Correspondingly, the nominal value of the Russian GDP was down as much when expressed in dollars. However, you still get almost as much bread and meat for the rubles (here almost refers to the inflation, which was much less than the currency devaluation). The size of the economy must of course be expressed as its real output and not according to the fluctuating nominal exchange rate.
Let’s take a more compelling PPP-comparison. With the lower ruble, Russia still produces for the same ruble price (and half the dollar) the same Sukhoi fighter jets, T-90 or Armata tanks, Superjet airplanes, nuclear power plants, personal cars, bridges, houses etc.
We could also look at the question the other way around. Hardly, anybody would venture to claim that the Russian economy grew 20% from January to April as the Russian ruble again strengthened against the dollar from 82 to 66 rubles to the dollar.
For reference here is the chart showing the nominal GDPs for the World’s largest economies.