Despite Sanctions Russia’s Economy Shoots over $4 trillion


by Jon Hellevig, Russia Insider:

In GDP adjusted for purchasing power parity Russia actually rivals Germany

According to fresh figures from the IMF (October 24), Russia’s GDP is expected to exceed $4 trillion first time ever. By this measure, Russia is the 6th largest economy in the world, virtually on par with Germany, who scored $4.15 trillion.

At the same time, China has solidified its position as the world’s indisputably largest economy. With its $23 trillion, China’s economy is already bigger 1/5th than the U.S. economy with its $19 trillion.

The overall trend is that the old economies of the West (G7) are year by year falling further behind in growth as the more vigorous countries of the emerging world are surging ahead. Since 2000, the Chinese economy has grown more than 5 times (525{5f621241b214ad2ec6cd4f506191303eb2f57539ef282de243c880c2b328a528}), while the U.S. economy could not even double in that time (88{5f621241b214ad2ec6cd4f506191303eb2f57539ef282de243c880c2b328a528}). In 2000, China’s economy ($3.7 trillion) was about equal in size with Japan’s ($3.4 trillion), but in 17 years Japan grew only 0.6 times (60{5f621241b214ad2ec6cd4f506191303eb2f57539ef282de243c880c2b328a528}), being now more than 4 times smaller than China.


India’s ascent with a 3.5 times (350{5f621241b214ad2ec6cd4f506191303eb2f57539ef282de243c880c2b328a528}) growth has also been remarkable. Another winner is Indonesia who mustered a 2.4 times growth (240{5f621241b214ad2ec6cd4f506191303eb2f57539ef282de243c880c2b328a528}).

The former European industrial powerhouses have been less fortunate, all failing even to double in the 17 years. UK grew by 85{5f621241b214ad2ec6cd4f506191303eb2f57539ef282de243c880c2b328a528}, Germany 71{5f621241b214ad2ec6cd4f506191303eb2f57539ef282de243c880c2b328a528}, France 71{5f621241b214ad2ec6cd4f506191303eb2f57539ef282de243c880c2b328a528}, whereas Italy only added 42{5f621241b214ad2ec6cd4f506191303eb2f57539ef282de243c880c2b328a528} in all those years.

Despite the sanctions burden and oil price plunge, Russia, however, managed to grow 1.5 times. As Russia has now successfully adjusted to the new economic realities and returned to a growth trend, it is expected that Russia will soon – maybe as early as in 2018 – supersede Germany.

Russia’s economy is now 40{5f621241b214ad2ec6cd4f506191303eb2f57539ef282de243c880c2b328a528} bigger than those of the UK and France and 70{5f621241b214ad2ec6cd4f506191303eb2f57539ef282de243c880c2b328a528} bigger than Italy.

Why the PPP method is more accurate for GDP comparisons

These GDP figures are calculated according to the PPP method. Chris Martinau from the Moscow accounting firm Awara Accounting explains that PPP stands for purchasing power parity and it aims to capture the value of the real economic output contrary to the method of rendering GDP in nominal USD figures. The nominal method, converts a country’s GDP calculated in the local currency to the USD using the market exchange rates. The figures calculated with the nominal method is what the media tends to report. But, the Nominal GDP method contains several grave errors. There’s a huge calculation bias in favor of the countries possessing the dominant world currencies, that is, the Western countries. Thanks to the dominant currencies, their GDPs tend to be inflated in value as compared with the countries with currencies that are not widely used globally. This way, the economies of the Western countries would seem bigger than they are if one only goes by the nominal market exchange value.

High taxes and a high general level of prices also push up the nominal GDP, again making the Western economies seem bigger than they are.

GDP is statistics fraught with assumptions

Before we proceed further, I must note that any GDP (Gross Domestic Product) calculation is a statistical exercise based on a host of assumptions on how to arrive to the total value of everything produced. Therefore, the step from Nominal GDP to PPP method is just one of the thousands of assumptions, the one method is not based on more exact input data than the other.

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