... China’s economy set to surpass that of America in real terms in 2016 — just five years from now.
Comments MarketWatch's Brett Arends: "It provides a painful context for the budget wrangling taking place in Washington right now. [The IMF's forecast] raises enormous questions about what the international security system is going to look like in just a handful of years. And it casts a deepening cloud over both the US dollar and the giant Treasury market, which have been propped up for decades by their privileged status as the liabilities of the world’s hegemonic power."
Arends continues: "According to the IMF forecast, which was quietly posted on the Fund’s website just two weeks ago, whoever is elected US president next year — Obama? Mitt Romney? Donald Trump? — will be the last to preside over the world’s largest economy.
"Most people aren’t prepared for this. They aren’t even aware it’s that close. Listen to experts of various stripes, and they will tell you this moment is decades away. The most bearish will put the figure in the mid-2020s.
"But they’re miscounting. They’re only comparing the gross domestic products of the two countries using current exchange rates. That’s a largely meaningless comparison in real terms. Exchange rates change quickly. And China’s exchange rates are phony. China artificially undervalues its currency, the renminbi, through massive intervention in the markets."
In addition to comparing the two countries based on exchange rates, the IMF analysis also examined in depth the true, real-terms picture of the economies using “purchasing power parities” [PPP].
This compares what people earn and spend in real terms in their domestic economies.
Under PPP, the Chinese economy will expand from $11.2 trillion this year to $19 trillion in 2016.
Meanwhile the size of the US economy will rise from $15.2 trillion to $18.8 trillion. That would take America’s share of the world output down to 17.7%, the lowest in modern times. China’s would reach 18%, and rising.
Just ten years back, the US economy was three times larger than China’s.