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GDP has always been the famous and most reliable metric for estimating the sizes of different world economies. It generally represents the value of all goods and services produced within a nation annually. There are different variations, but it has allowed economists to understand the relative sizes of various world economies. The world’s largest economies have a massive influence on global finance and trading. For context, the top 10 largest economies account for over 66% of the worldwide economy.
How to Evaluate a Country’s Economy
Macroeconomic indicators provide valuable cues about the prevailing factors in the market and possible future trends. Here are some of the key macroeconomic indicators to consider when evaluating the economies of different countries:
Gross Domestic Product (GDP)
GDP is the broadest of all macroeconomic indicators. It measures the monetary value of all final goods and services produced in a country within a specific period, usually quarterly or annually. There are many approaches to calculating GDP:
- GDP per capita.
- GDP by country.
- Expenditure (the total spending of different economy participants).
- Production (while expenditure focuses on input, production focuses on output cost).
- Income (a hybrid of the two that focuses on the income earned or generated by various economic factors).
For comparison, there is usually Nominal GDP and Purchasing Power Parity-adjusted GDP. Nominal GDP is straightforward and typically adjusted to US dollars using prevailing market exchange rates. On the other hand, PPP is designed to estimate the difference in the cost of living in different countries. It does so by comparing the prices of baskets of goods and services after adjusting the exchange rates.
Consumer Price Index (CPI)
CPI measures the weighted average of a basket of vital goods and services such as food, healthcare, and transportation. CPI is the primary measure of inflation and deflation on both the consumer and producer level. CPI is one of the most essential indicators watched by monetary policymakers, such as central banks.
The unemployment rate is the percentage of the labour market without a job. While it is generally considered a lagging indicator, it provides information to help policymakers and investors make good decisions. For instance, when the unemployment rate is getting higher, policymakers, such as government and central banks, can make decisions to boost the economy. In contrast, investors can examine the sectors losing jobs to execute exit strategies.
World’s 10 Largest Economies
Nominal GDP: $22.66 trillion
GDP (PPP): $22.68 trillion
The USA is the largest economy in the world by nominal GDP, and its currency (the US dollar) is the most powerful and the most used, both in circulation and reserve. The country has a well-diversified and open economy, with services being the most significant contributor to its GDP. Furthermore, the US is currently the world’s dominant political power, and it can dictate the global economy literally.
Some of the biggest companies in the world, such as Apple, Microsoft, Amazon, ExxonMobil, Visa, and Coca-Cola, are all domiciled in the US. Its stock exchanges, NYSE and NASDAQ, are also the biggest globally. Despite its enormous successes, the US economy faces threats such as rising healthcare and social security costs and widening economic inequality.
Nominal GDP: $16.64 trillion
GDP (PPP): $26.66 trillion
China is the second-largest economy in the world by nominal GDP and one of the biggest countries in the world in terms of PPP. In the last four decades, China has implemented policies that have seen the country consistently close the gap between itself and the US. Many economists have forecasted that China’s economy will surpass that of the US in a few years.
China is the world’s number 1 manufacturer as well as exporter. In addition to being an influential player in global trade, China also houses big tech companies such as Alibaba and Baidu and continues to make essential milestones in sectors such as 5G and video streaming services. The biggest threats to the Chinese economy are the ageing population and pollution.
Nominal GDP: $5.38 trillion
GDP (PPP): $5.59 trillion
The third-largest economy in the world is Japan, and it crossed the $5 trillion mark in 2019. A manufacturing and export-oriented economy, Japan has reaped the benefits of leveraging partnerships between the government and private sector and sharing knowledge between industries. A highlight of the strength and resilience of the Japanese economy is its low unemployment rates throughout history.
Japan impressively recovered from the asset bubble of the 1990s, which has been dubbed the ‘Lost Decade’. The country is well known for its automobile industry as it hosts notable brands such as Toyota, Nissan, Mazda, Suzuki, Honda, and Mitsubishi. Key risks for the Japanese economy include high levels of debt and an ageing population.
Nominal GDP: $4.32 trillion
GDP (PPP): $4.74 trillion
Germany is Europe’s biggest economy and the world’s fourth-largest by nominal GDP. The country is a major exporter of high capital goods such as automobiles, machinery, energy equipment, electronic products, branded clothing, pharmaceuticals, and chemicals. Exports account for over 40% of Germany’s economy.
Germany is home to top companies such as Volkswagen, Daimler AG, BMW, Allianz, Siemens, Deutsche Bank, and Adidas. Despite its successes, the country’s most significant source of risk is an ageing population combined with low birth rates and net immigration pressures to its social welfare system.
Nominal GDP: $3.12 trillion
GDP (PPP): $3.17 trillion
The UK is the fifth-largest economy in the world by nominal GDP. The UK’s economy is driven by services, with London regarded as one of the world’s major financial centres. The country is home to major global financial services companies such as HSBC, Prudential, Barclays, Lloyds, Standard Chartered, and Admiral Group.
The UK boasts one of the most globalized economies in the world. The country is a major player in global trade and continues to be the EU’s leading trading partner despite exiting the trading bloc in 2016 (Brexit). The UK’s economy has, in recent years, faced political risks as well as legislative risks arising from Brexit.
Nominal GDP: $3.05 trillion
GDP (PPP): $10.21 trillion
India is the sixth-largest economy globally by nominal GDP and the third by PPP. Since the turn of the millennium, India has implemented favourable policies to grow its economy six-fold. The country now boasts the fastest growing economy in the world. India has a mixed economy that is increasingly integrated into the global economy. Its young population also raises its prospects for the future.
India is a leading producer of steel, coal, cement, and electricity. The country is a major global pharmaceutical player and tops the world in the production of generic drugs, while Its services sector is the fastest-growing, whereas agriculture and industrials remain significant employers. Despite positive prospects, its biggest source of risk is low per capita income and high unemployment rates.
Nominal GDP: $2.94 trillion
GDP (PPP): $3.23 trillion
France is the sixth-largest economy in the world by nominal GDP. It is the second-largest economy in the EU (behind only Germany) and boasts a highly developed diversified economy. Services, industrials, and energy drive the French economy. The country’s capital, Paris, is a powerful city that contributes over a third of France’s GDP. Still, France has other leading cities like Toulouse, Marseille, Lille, and Lyon.
France is an industrial hub well known for its aerospace, telecommunications, and automobiles. It is also a leading tourist destination and the top player in nuclear energy. Some notable companies hosted in France include Total Energies, AXA, Carrefour, Peugeot, Renault, and Sanofi. Nonetheless, France faces risks of relatively high debt compared to other advanced economies and high unemployment.
Nominal GDP: $2.11 trillion
GDP (PPP): $2.61 trillion
Italy is the world’s eighth-largest economy by nominal GDP and the third-largest in the European Union. The aftermath of World War II saw a transition from an agricultural economy to one of the most industrialized nations in the world. The drivers of the Italian economy are the metallurgical and engineering industries. Italy is also a hub for luxury products such as branded clothing and high-end cars.
Italy’s economy is driven by the industrialized northern part of the country, whereas high poverty levels characterize the southern region. Nonetheless, Italy is one of the leading custodians of private wealth globally. In recent years, its economy has suffered stagnation and faces risks such as a lack of energy sources and raw materials.
Nominal GDP: $1.88 trillion
GDP (PPP): $1.98 trillion
Canada is the ninth largest economy by nominal GDP. The Canadian economy is highly advanced and driven by services and the country’s robust energy sector. Canada boasts the third highest value of natural resources. It is a leading producer of oil and gas and metals such as Gold, Platinum, Nickel, Titanium, and Iron Ore. Its services sector is the top employer in the country and consists of robust industries such as retail, financial services, real estate, and tourism.
Canada also has an enviable location, being a neighbour of the world’s largest economy, the US. The two nations have enjoyed positive relationships for years, with Canada exporting over 75% of its products to its rich neighbour. Some of the biggest companies domiciled in Canada include Royal Bank of Canada, Canadian Natural Resources, Shopify, BCE, Thomson Reuters, Lulu lemon, and Barrick Gold.
Nominal GDP: $1.81 trillion
GDP (PPP): $2.44 trillion
The South Korean economy has been a sensation in the 21st century. It is the tenth-largest economy globally by nominal GDP and the fourth largest in Asia. South Korea has an advanced, diversified economy with leading sectors being electronics, telecommunications, steel, automobiles, and shipbuilding. The country has been one of the fastest-growing economies and is home to iconic companies such as Samsung, Hyundai, LG, and Kia.
Despite its success story, South Korea’s most significant source of risk is the tension between itself and its neighbour, North Korea. The country also has an ageing workforce and is over-reliant on exports.
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