In 2023, the United States outpaced China in the race to become the world’s leading economy. Last year, the American GDP experienced a nominal growth of 6.3%, while China’s grew by 4.6%. In comparison, Russia’s GDP showed a growth of 3.5%. Invest Foresight interviewed Alexander Abramov, head of the laboratory for analysis of institutions and financial markets at the Institute of Applied Economic Research, RANEPA, to discuss the implications of this development for the global economy, Russia, as well as the contemporary significance of the GDP concept.
– So, although the forecast for US GDP growth was modest, the New World has surpassed China in nominal terms. What implications does this hold for the global economy, and how might it impact China and Russia?
– Actually, the United States outpacing China in the competition for GDP growth supremacy doesn’t have any particular significance. In fact, this highlights some of the challenges associated with this competitive process.
– What kind of challenges?
– Take deflation in China as an example, a phenomenon far more significant than merely correlating and comparing the economies of the US and China. Moreover, measurement methods can vary significantly, resulting in quite disparate outcomes.
– What else does the US high nominal GDP indicate?
– It shows that the United States’ growth comes from rather unexpected sources, the second most important source being foreign companies’ investments in the economy. That’s what is actually surprising; this is the outcome of President Biden’s industrial policy.
The United States has outpaced China in terms of GDP growth – and that’s fine. Yet, it is more important to analyze the actual causes of this phenomenon, the correlation between the two economies being not so significant.
– Is this fact relevant to Russia? Does it make any difference at all?
– I would say this statistics has no particular significance for our country. Yet, it does show that China, as today’s major trading partner and supplier of a wide scope of goods and technologies, is a rather high-risk country. This is why we should probably pay particular attention to its economy to avoid developing long-term major strategies that may contradict the actual state of affairs, among other things.
– So Russia should not focus solely on China as its major partner?
– Don’t put all your eggs in one basket. For instance, China is taking every measure to restrict its investments in foreign assets. Deflation is a major issue for the country, whose residents are very conservative about consumption. The Chinese stock market has slumped. I think we slightly underestimate all these aspects while borrowing heavily from China and building our strategic plans for bilateral cooperation.
– With US inflation ticking up to 3.4%, its gross domestic product falls behind China’s, whose inflation was 0.2% in 2023. This makes China’s real GDP larger by 0.4% than that of the United States. Why calculate the nominal GDP? Which measure is more relevant?
– I would not consider the GDP measure as an economic development indicator; a lot there is actually questionable. I believe that comparing economies in terms of their GDP and its dynamics as expressed in the current dollars, calculated by market exchange rates, is far more relevant. And, importantly, economies should be compared in terms of purchasing power parities.
– How do these indicators differ?
– The former indicator, which is related to the current exchange rate, is more objective as regards economic growth and actual economic developments, given the current exchange rates. The latter indicator is more relevant for measuring citizens’ well-being, with countries’ per capita income compared through PPP.
Speaking of which, this particular measure is also calculated using two indicators. The World Bank reports PPPs as expressed in constant 2017 international dollars as well as the new PPPs. And, importantly, in terms of the 2017 reference year, Russia was the world’s sixth-largest global economy, while currently it ranks fifth.
– So it depends on the way we calculate it.
– We definitely shouldn’t view these indicators as absolute. Each of them depends on the measurement.
Just to remind, there is an issue regarding global competitiveness rankings by the World Economic Forum, Doing Business, and the World Bank. They all failed as soon as countries began to view them as flagships providing key information on their competitiveness. This led to countries’ attempts to influence and dominate these rankings, which ultimately ruined them, resulting in a bias in a mere race for numbers.
– Does it apply to GDP as well?
– I think that we need to be careful with GDP indicators as well. For example, many have mentioned that the World Bank’s reports are more favorable towards Russia and China than the ones by the International Monetary Fund, and so on.
Therefore, I believe that we need to consider several assessments from different organizations to avoid seeing comparisons based on sole indicator in absolute terms.