In two previous posts, I criticised a number of recent commentators in the Financial Times (FT) for routinely quoting figures that were much too low for the GDP of poorer countries. I made the point that, as a direct though not always explicitly-noted consequence, this procedure leads to a considerable underestimate of total world GDP.
In these and an array of other cases, the error arises from taking dollar exchange rates, rather than purchasing power parity (PPP) converters, as the basis for cross-country comparisons.
It is good to see that in recent pieces by FT staffers the authors have relied on PPP-based estimates, labelled as such, for GDP (and in consequence, GDP per head). However, other prominent sources continue to present seriously misleading exchange-rate-based figures. A recent instance is to be found in the just-published Energy Outlook 2035, this year’s edition of the well-known annual series produced by BP.
On page 6 of this report the (encouraging) statement is made that that ‘Gross Domestic Product (GDP) is expressed in terms of real Purchasing Power Parity (PPP) at 2011 prices’. Yet on page 8 the text reads:
“China and India are […] are projected to grow by 5.5% per annum (p.a.) between 2013 and 2035. By 2035, they will be the world’s largest and 3rd largest economies respectively, jointly accounting for about one-third of global population and GDP.”
These are exchange-rate-based comparisons, though the reader is not told so; and as such, they do not conform to the earlier statement and yield results which are inconsistent with it: the PPP-based data for China and India are simply ignored here.
As noted in my previous posts, those data clearly indicate (1) that the Indian economy is already, by a wide margin, the third largest in the world, and (2) that the GDP of China now exceeds, by a small but growing margin, that of the US. The idea that these rankings might take till close to 2035 to come about, even with the GDP of both countries growing at an assumed average rate of 5.5 per cent per annum, is not to be taken seriously.
In the context of China and the US, here again are some comparative figures for 2013, as quoted in my previous posting but with two further items now added for good measure:
· Estimated consumption of primary energy in China was over 25 per cent higher than in the US.
· Electric power generation in China appears as 27 per cent higher than in the US.
· The total value of exports of goods and services from China exceeded by an estimated 7.7 per cent the corresponding figure for the United States.
· Production of vehicles in China was almost exactly double that in the US.
· Chinese production of steel was almost nine times that in the US.
· Chinese production of cement was almost 30 times that in the US.
Before the firm’s next Energy Outlook appears, in 2016, some statistical rule enforcement is called for at BP.
And to continue the Financial Times story: A recent article (4 March) by a FT staffer correctly noted that “Last year, China overtook the US as the world’s largest economy in purchasing power parity terms”. But in an op-ed article which appeared in the paper on the same day, Professor Ian Bremmer wrote that “the US economy […] accounts for less than a quarter of world economic output.” This latter figure is exchange-rate-based, though the reader was not told so. Taking the PPP-based total for world GDP, the US share for 2013 appears as just under one-sixth.