Market Commentary: China is by far the largest economy, ahead of the USA

Whenever Anglophone media talk about how great the economic power of individual countries and regions is today, they almost always explicitly state that the United States has the largest gross domestic product (GDP), followed by China. However, this is only partially true, namely under the assumption that the national account figures are converted into dollars at the current or most recent market exchange rates. These, however, fluctuate greatly and are therefore no more than a snapshot. To determine the true economic power of a country compared to that of others, so-called purchasing power parities (PPP) should be used – they eliminate the constant ups and downs of market exchange rates. They reflect what one can buy in one’s own country for one unit of one’s own currency. Purchasing power parities are also something like the equilibrium exchange rate towards which market prices move in the longer term.

According to IMF-calculations, China’s purchasing power-parity GDP is about 33 percent larger than that of the USA this year. The GDP of the European Union is also significantly larger in PPP terms than in terms of market exchange rates (29.2 instead of 20.0 trillion dollars) – it is suddenly on a par with the United States. If Great Britain were still in the EU, European GDP would be about 10 percent bigger than that of the United States.

The fact that China is so much larger than the US can also be seen in various other indicators for 2024: employment 740 million vs. 160 million; passenger car registrations 25 million vs. 16 million; steel production 1,005 vs. 79 million tons; electricity generation 10 billion MWh vs. 4.6 billion MWh. The military budget is still relatively small: $314 billion vs. $997 billion. As to services, there are no reliable figures that allow a comparison. But it is clear that China’s GDP is still growing faster than America’s, and that the gap is widening. After all, the Chinese population is about four times larger than America’s.

However, the US purchasing power GDP per capita is still one of the highest in the world. Some smaller European countries are in the same league, though – they have a comparable standard of living:

Overall, the weights in the global economy continue to shift rapidly. This makes it all the more urgent to work towards peaceful coexistence and avoid confrontations. Unfortunately, this idea has not yet reached all governments.

About Wermuth Asset Management
Wermuth Asset Management (WAM) is a Family Office which also acts as a BAFIN-regulated investment consultant.
The company specializes in climate impact investments across all asset classes, with a focus on EU “exponential organizations” as defined by Singularity University, i.e., companies which solve a major problem of humanity profitably and can grow exponentially. Through private equity, listed assets, infrastructure and real assets, the company invests through its own funds and third-party funds. WAM adheres to the UN Principles of Responsible Investing (UNPRI) and UN Compact and is a member of the Institutional Investor Group on Climate Change (IIGCC), the Global Impact Investing Network (GIIN) and the Divest-Invest Movement.
Jochen Wermuth founded WAM in 1999. He is a German climate impact investor who served on the steering committee of “Europeans for Divest Invest”. Jochen was on the founding investment committee of Germany’s SWF KENFO from June 2017 until February 2024.

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