China could surpass U.S. in 2012

From Luca Di Leo of The Wall Street Journal on Nov. 10:

China’s continued rapid growth should make it the main driver of the global economy next year as the U.S. slows down, the Conference Board said in a report published Wednesday.

In just two years, the Asian country could even overtake the U.S. as the world’s largest economy — at least by one economic measure, the research group said in its annual global outlook.

China’s economy should grow by 9.6% in 2011 after expanding by 10% this year. By contrast, the U.S. economy is seen slowing to just 1.2% growth next year from 2.6% in 2010.

According to the most commonly used way to compare economic size, the gap between second-place China’s $5.0 trillion economy and the U.S.’s nearly $15 trillion output remains large. By that measure, it could take China more than a decade to match the U.S. even at the current very high growth rates, which will be hard to sustain for the Asian country.

But things look different when considering purchasing-power parity (PPP), which takes into account the goods and services a country’s currency actually buys at home and is a measure that’s closely watched by some professional economists, including at the Conference Board. Taking into account the difference in prices of the same goods between countries — in other words, measuring the real purchasing power people have in each country — the think tank predicts China could have a larger economy than the U.S. by 2012.

The Conference Board sees the U.S. economy slowing by almost 1.5 percentage points in 2011 due to slower spending by consumers, companies and the government. At only 1.2%, growth in the U.S. next year would be lower than both Japan and Western Europe, which are expected to grow by 1.5%. But thanks to strong emerging economies like China and India, the global economy is seen growing by 4.2% in 2011.

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