Tuesday, December 23, 2014

At 5% growth, US is no pushover

WASHINGTON: The United States is not going to roll over so easily and cede its No. 1 position to China. It transpires that the American economy grew at an impressive 5 per cent in the third quarter of the year in which China was widely reported to have overtaken the US as the world's largest economy.

While China ascending to No. 1 may yet be true when measured in purchasing power parity, the United States is showing there is still some life left in the old dog. Coupled with its 4.6 per cent growth in the second quarter, the US has put up two best consecutive quarters of growth in more than a decade, signaling that the American recovery has hit a firm stride after the great recession.

A 5 per cent growth of a giant $ 17 trillion American economy is impressive. But it will only slow down China - whose economy is approximately half the size of the US economy but growing about twice as fast - from overtaking the United States more speedily and decisively.

Already, by some accounts, 2014 marked the year in which the Chinese economy overtook the American economy when measure in purchasing power parity (PPP), a metric that enables the comparison of incomes in various countries depending on cost of living and purchasing power of its citizens in local currency and conditions.

The US economy at the end of 2014 is estimated at $17.555 trillion. China's economy at the same time is $17.632 trillion in PPP terms, although its nominal size in only around $10 trillion. Therefore, its per capita income given its 1.2 billion population is less than $ 7000 in actual terms, compared to $ 53,000 in the United States.

India is a distant third with a GDP of $7.2 trillion in PPP terms, $2.047 trillion in nominal terms, and a per capita income of $1,625 in nominal terms.

Of course, the numbers don't tell the full story. The US growth is triggered by a surge in consumer spending and personal consumption, helped in recent months by a precipitous drop in oil prices that has left more money in American pockets. But there has also been an uptick in job creation, the best since 1999, and more people going to work means more income and more spending.

Still, the US is leery of China, and many economists are reconciled to the Asian giant overtaking America in overall GDP growth, even if not in per capita terms that may not happen for a long time.

"When the history of 2014 is written, it will take note of a large fact that has received little attention: 2014 was the last year in which the United States could claim to be the world's largest economic power," the economic savant and stalwart Joseph Stiglitz wrote recently. "China enters 2015 in the top position, where it will likely remain for a very long time, if not forever. In doing so, it returns to the position it held through most of human history."

Not without the US putting up a fight, he might have added.

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