WASHINGTON: The International Monetary Fund is reporting that China has surpassed the United States as the world’s largest economy in terms of purchasing power parity.

The IMF estimated the size of the US economy in 2014 as $17.4 trillion, while China’s at $17.6 trillion.

As recently as 2005, China’s economy was less than half of the United States.

The IMF also projected that China’s economy will be 20pc bigger than that of the US by 2019.

According to the IMF, China now amounts for 16.48pc of the world’s purchasing-power-adjusted GDP. At 16.28pc, the United States is slightly less than China.

The IMF used the PPP (GDP based on purchasing power parity) method to calculate the size of the two economies.

It argues that the PPP method is better than using volatile exchange rates, which do not reflect the true cost of goods and services.

Under this method, while calculating the size of China’s economy, the IMF also considered the fact that a trillion US dollars have a greater purchasing power in China than in the United States.

According to IMF estimates, in 2015 the gap between China and the US will increase to almost a trillion dollars: Chinese GDP PPP will amount to $19.23 trillion against $18.286 trillion in the US.

The United States, however, remains the undisputed world leader in terms of a real GDP with $16.8 trillion output, significantly outpacing China with $10.4 trillion.

The United States has been the number one global economic power since it overtook the United Kingdom in 1872.

Meanwhile, in its autumn report, released in Washington this weekend, the IMF warned member countries that bold action was needed to bolster the global economic recovery.

“The global economy remains on a cautious watch and is subject to considerable downside risks,” warned the IMF Development Committee which met in Washington on Saturday.

“Shared prosperity will require inclusive economic growth, job creation, and a sustained multilateral effort to empower the poorest and most vulnerable.”

The committee also noted the progress made in pursuit of the World Bank Group’s goals of ending extreme poverty and boosting shared prosperity in a sustainable manner.

The Fund this week cut its 2014 global growth forecast to 3.3pc from 3.4pc, the third reduction this year as the prospects for a sustainable recovery from the 2007-2009 global financial crisis have ebbed, despite hefty injections of cash by the world’s central banks.

Published in Dawn, October 13th, 2014