Download NEWS RELEASE News Release No. 2007/58/DEC Contacts

NEWS RELEASE
News Release No. 2007/58/DEC
Contacts:
Richard Fix, work # 202-473-3399
[email protected]
Merrell Tuck work # 202-473-9516; mob# 202 415 1775
[email protected]
2005 International Comparison Program
Preliminary Global Report Compares Size of Economies
WASHINGTON, December 17, 2007 – The International Comparison Program (ICP) today
released new data showing the world economy produced goods and services worth almost $55
trillion in 2005 and that almost 40 percent of the world’s output came from developing
economies. Carried out with the World Bank and other partners, the preliminary global report
provides estimates of internationally comparable price levels and the relative purchasing power of
currencies for 146 economies.
The principal outputs of the ICP are estimates of Purchasing Power Parities (PPPs) benchmarked
to the year 2005. PPPs are used instead of exchange rates to convert national economic measures
such as gross domestic products into a common currency. By taking account of price differences
between countries, PPPs allow comparisons of market size, the structure of economies, and what
money can buy. The new PPPs replace previous benchmark estimates, many of them from 1993
and some dating back to the 1980s.
The global report brings together the results of the International Comparison Program and the
Eurostat-OECD PPP program.
The report also provides estimates of gross domestic product (GDP) for 146 economies, along
with GDP per capita, and their price level index (PLI), which shows which economies are
cheapest and which are most expensive when currencies are converted using market exchange
rates.
This was the most extensive and thorough effort ever to measure PPPs across countries. Teams in
each region identified characteristic goods and services to be priced. Surveys conducted during
2005 collected prices for more than 1,000 goods and services. New and innovative data validation
tools were implemented to improve data quality. A representative group of economies from each
region priced a common, global set of goods and services used to calibrate the regional PPPs to
the global level.
Major findings
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Twelve economies account for more than two-thirds of the world’s output. Seven of them
are high-income economies (United States, Japan, Germany, the United Kingdom, France,
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Italy and, Spain), and five are developing or transitional economies (China, India, Russia,
Brazil, and Mexico). The five largest developing economies account for more than 20
percent of global output and over 27 percent of the world expenditures for investment
purposes.
China participated in the survey program for the first time ever and India for the first time
since 1985. These results are more statistically reliable estimates of the size and price
levels of both economies. The new, improved methods rank China as the world’s second
largest economy with almost 10 percent of world GDP and India follows as the fifth
largest with over 4 percent of the world total.
Overall, the 2005 benchmark results show that the size of the world economy measured in
PPP terms is smaller than previous estimates. The Asian and African non oil exporting
economies are one- third and one-fourth smaller, respectively. However, Asia still
accounts for over 20 percent of the world’s output. Estimates of China’s GDP are 40
percent below the results of previous measures.
Which are the largest economies?

The US, China, Japan, Germany and India account for nearly half of the world’s GDP as
measured by PPPs.

Brazil accounts for one-half of the South American economy, and nearly two-thirds of
collective government expenditures in the region.

Russia dominates the CIS regional economy with three-fourths of the total and two-thirds
of the investment shares.

The African economy is dominated by South Africa, Egypt, Nigeria, Morocco, and Sudan,
which collectively account for nearly two-thirds of the region’s GDP.
Which countries are the most expensive?
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The Price Level Index (PLI) shows which economies are the most and least expensive. It
corresponds to travelers’ experience of making purchases after converting their currency at
market exchange rates. The Price Level Index is the ratio of a country’s PPP divided by its
exchange rate to the US dollar. An index over 100 means prices are higher on average than
in the US, and one less than 100 means prices are relatively lower.
The most expensive economies are Iceland, Denmark, Switzerland, Norway, and Ireland
with indices ranging from 154 to 127. The United States ranked 20th in the world, lower
than most other high-income economies, including France, Germany, Japan, and the
United Kingdom.
The range is greater at the other end of the spectrum with more than 40 economies
showing a PLI of 40 or below. The cheapest economies are Tajikistan, Ethiopia, Gambia,
Kyrgyz Republic, and Bolivia.
Measured by GDP per capita, the five richest economies are Luxembourg, Qatar, Norway,
Brunei Darussalam, and Kuwait. Collectively, they account for less than 1 percent of the world’s
output. Seventeen economies have a GDP per capita of less than $1,000. The world average is
approximately $8,900 per capita.
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Per capita measures of individual consumption, a measure of what households consume,
provides a way to compare average living standards. By this measure, the five richest economies
are Luxembourg, United States, Iceland, United Kingdom, and Norway. The world average
individual consumption is approximately $6,100 per capita.
Investment expenditures. The US accounts for the largest share of the world’s expenditure for
investment, but at 21 percent, it is closely followed by China with 18 percent. The 10 largest
economies account for over more than two thirds of the world’s investment. The share of
investment in low and middle income economies is larger when world shares of investment are
measured in PPP terms.
Limitations to the use of the data. Purchasing power parities are statistical estimates. Like all
statistics they are subject to sampling errors, measurement errors, and errors of classification.
Therefore they should be treated as an approximation to an unknown, true value. Because of the
process used to collect the data and calculate the PPPs, is not possible to provide a precise
estimate of their margins of error. Therefore, small differences in the estimated values should not
be considered significant.
PPPs should not be used as indicators of the under- or overvaluation of currencies. They do not
tell us what exchange rates “should be”. PPPs do not reflect the demand for currencies as a
medium of exchange, speculative investment, or official reserves.
-- ### -Additional details, including per capita measures and relative price levels for three more
components of the GDP (actual individual consumption, government consumption, and gross
fixed capital formation) along with explanatory materials, can be found at
www.worldbank.org/data/icp.
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