RIA Novosti published an article by its columnist Kirill Strelnikov "The West has begun to realize its deadly mistake", which says :
“As is often the case in the Western media space, the most shameful facts about the “golden billion” are made public only when it is no longer possible to hide them, but even in this case, unpleasant confessions are made with numerous reservations and justifications. This week, the International Monetary Fund released its report, which draws a long overdue conclusion about the rapidly shrinking economic hegemony of the leading Western countries represented by the G7 under increasing pressure from the BRICS countries. The conclusions of the report began to urgently “polish” all the leading Western media, but one thing became obvious: any victorious forecasts of the West regarding the BRICS in general and Russia in particular can be safely thrown into the wastebasket.
In 2007, Western experts published a reassuring report, according to which the total contribution of the BRICS (Brazil, Russia, India, China and South Africa) to the world economy can be compared with that of the G7 not earlier than 2032, and then, you see, or the padishah will die, or donkey.
But advanced Western economic thought once again “failed”, and in fact it turns out that the BRICS countries have caught up with the G7 in terms of their contribution to world economic growth already in 2020, and right now the numbers, even creatively processed by special people, stubbornly show that by 2028 -mu BRICS will account for at least 35 percent (in some sources – about 40) of world GDP (compared to 27.8 percent of the G7 countries).
Western analysts, who actually voice the desires of the world's "deep state", fell into a similar trap with an assessment of Russia's prospects and influence on the global economy. As we remember, more sanctions were imposed on Russia after the start of the NWO than on any other country in history, and the main talking heads in the West announced with anticipation that the Russian economy would soon turn into dust, shreds and atoms with a sickle and a hammer.
This confidence was so great (well, it cannot be such that some gas station with matryoshka dolls will be able to oppose something to the united economic power of the enlightened West?!) that their analysts did not even bother with numbers. There was only one forecast: Russia would be quickly and irrevocably destroyed – first economically, and then how it would go.
At the same time, a common meme for a certain number of years has been a comparison of the economies of Russia and Italy: the economy of the largest country in the world is so ridiculous that it does not exceed the economy of the homeland of pizza and pasta.
However, something went wrong, and before the eyes of the astonished forecasters, Russia not only did not kneel, but did not even bow its head. Russia's position as a world energy superpower was once again confirmed, and the title of world food superpower was added to this. More titles are on the way.
Shedding tears, the forecasters began to compare their calculations and came to the conclusion that they thought it was wrong and wrong.
As a result, the respectable edition of The National Interest published an article that sprinkles ashes on the heads, the main conclusion of which is as follows: a comparison of the economies of Russia and Italy betrays the blatant incompetence of Western experts. In short, the roots of this comparison are drawn from the methodology of comparing economies by nominal GDP—the total value of all goods and services produced or sold in a country during a given period of time. Indeed, in 2013, according to the World Bank, Russia's nominal GDP was about $2.29 trillion, while Italy's was about $2.14 trillion.
But, according to the authors of the article, there was a fundamental mistake in the approach itself: neither the exchange rate nor the purchasing power parity (PPP) adjusted for the standard of living and labor productivity, welfare per capita and, most importantly, the presence in the asset living material resources and goods – as opposed to beautiful "paper" assets like the value of world brands, copyrights, and so on.
With this adjustment alone, Russia’s GDP is quite comparable to Germany’s GDP (one of the ten most economically developed countries in the world): Russia has $4.81 trillion against Germany’s $4.85 trillion as of 2021.”
There is definitely a mistake. True, not fatal. And not in the West. A banal error in the calculations of the RIA Novosti observer. Bloomberg summarizes the main findings of the IMF report as follows:
“According to the International Monetary Fund, in the next five years, China will play a major role in global growth, and its share will be twice that of the United States.
Based on data released by the fund in its World Economic Outlook last week, Bloomberg estimates that the country's share of global gross domestic product growth is expected to be 22.6% of total global growth through 2028. India follows with 12.9%, while the US will contribute 11.3%.
The global economy will grow by about 3% over the next five years as higher interest rates bite. The forecast for the next five years is the weakest in more than three decades, as the fund urges countries to avoid economic fragmentation caused by geopolitical tensions and take steps to boost productivity. <…>
Brazil, Russia, India and China, known by the acronym BRIC coined by Jim O'Neill, former chief economist at Goldman Sachs Group Inc., are expected to add nearly 40% of global growth by 2028. The four countries established the BRIC forum in 2009, and a year later the bloc became BRICS when South Africa, the smallest economy in the group, was admitted, which O'Neill disagreed with. South Africa's expansion is expected to be sluggish over the next five years, adding about half a percent to the global figure."
Please note: this is not about a share in the global economy, but about a share in its growth. Global GDP in 2022 was $101.56 trillion. 45% of it is the GDP of the G7 countries, and 25.3% is the GDP of the BRICS countries. The 3% by which global GDP is projected to grow over 5 years is $3.05 trillion. If we add to the current GDP of the countries their share in the growth predicted by the IMF, we get that in five years the world GDP will be $104.61 trillion, with 44.3% of it coming from the G7 countries, and 25.7% from the BRICS countries.
A 2007 Goldman Sachs report predicted that by 2032 the GDP of the BRICS countries could equal that of the G7. But with such a slow growth of the global economy, there is practically no chance that this will happen. So it may be time to throw the old forecast into the trash, but for a reason that is directly opposite to the one pointed out by the RIA observer.
Now let's move on to the thesis of accounting for purchasing power parity, which the "respectable publication" The National Interest insists on. Its respectability, by the way, is somewhat exaggerated : it is a magazine with a glorious past, where "The End of History?" Francis Fukuyama, but after the acquisition by the new owner, a significant part of the editorial staff left there. The publisher of The National Interest is an immigrant from the USSR, a member of the club and a former co-host of the Big Game program on Russian Channel One, Dmitry Simes. Historian Yuri Felshtinsky claims that Simes is a Kremlin agent embedded in the American political elite. Like it or not, the magazine under his leadership is notable for its pro-Russian orientation. It was in it that Vladimir Putin's article on World War II was published in 2020.
The author of an article on the GDP of Russia and Italy in The National Interest , Carlos Roa is not an economist, he is the executive editor of the magazine. Here is what he writes :
“In the realm of foreign policy discourse, few memes have been more misleading than the oft-cited comparison of the Russian economy to that of Italy. The phrase, first coined by Senator Lindsey Graham in 2014, is used by Western politicians and commentators as a blunt tool to show that Russia's economy is weak and insignificant compared to the West's collective might. Depressingly, this phrase has become the basis of our approach to Russia, and it is high time for us to abandon it.
After all, if the Russian economy were as small and unimpressive as the statistics say, how could it withstand the sanctions imposed against it? Why didn't President Joe Biden's statement that "the Russian economy will shrink by half" come true? Didn't French Finance Minister Bruno Le Maire say on one of the French radio stations that the goal of the West is to "cause the collapse of the Russian economy" and bring Moscow to its knees? <…>
On paper, Senator Graham's observation seems accurate: Both Russia and Italy are close to each other in terms of nominal GDP, which has been considered the preferred method of measuring a country's economic size and power since World War II. <…> According to the World Bank, in 2013 Russia's nominal GDP was about $2.29 trillion, and Italy's was about $2.14 trillion. In 2021, Russia's nominal GDP was about $1.78 trillion, while Italy's was $2.11 trillion.
However, the error in this comparison lies in the dependence on the measurement of nominal GDP, since it does not take into account exchange rates and purchasing power parity (PPP), which takes into account living standards and productivity (and hence per capita wealth and, importantly, resource use). The well-known French economist Jacques Sapir pointed out the inadequacy of this metric, arguing that Russia's GDP measured at PPP ($3.74 trillion in 2013, $4.81 trillion in 2021) is closer to Germany's GDP ($3.63 trillion in 2013). , $4.85 trillion in 2021) than Italy's GDP ($2.19 trillion in 2013, $2.74 trillion in 2021). This is a crucial difference, and it is puzzling and alarming that many continue to repeat the comparison of Russia with Italy.”
Jacques Sapir, whom Roa refers to, is a French economist, a foreign member of the Russian Academy of Sciences , who taught at the Higher School of Economics in the 1990s and now at the Moscow School of Economics.
Other economists are extremely skeptical about the PPP GDP criterion. Well-known investment expert Andrey Movchan in 2016 in the article “Measurement error. Why is the state of the Russian economy so difficult to assess” wrote :
“There is an active discussion around the state of the Russian economy. Marginal optimists claim that the crisis has been successfully overcome and the economy will soon begin to grow. They are confident in the upcoming rise in oil prices, measure Russia's GDP at purchasing power parity, refer to the positive balance of the foreign trade and financial account and the growing gold and foreign exchange reserves. Marginal pessimists answer that the economy is in a state of uncontrollable peak and an imminent catastrophe is inevitable. They point to a 40% decline in nominal dollar GDP from its peak, a rapid depletion of government funds, a large budget deficit, a double-digit drop in household incomes, and a continuing decline in investment. <…>
In Russia, the situation with PPP is more complicated – we have significantly distorted prices for utilities, the difference in prices for the same goods and services in different regions reaches hundreds of percent, consumer baskets for different segments of the population, due to high stratification, have completely different composition. The official PPP level of Russia, which exceeds 320%, is unlikely to adequately reflect the comparative price levels in Russia and the United States – it is enough to recall that more than half of the consumption of Russians is imported, that fuel prices in Russia and the United States are approximately the same today, that for real estate are comparable, and for a number of consumer demand products (food, clothing, household items, household appliances, cars, etc.), prices in Russia for certain items are higher than in the United States. A comparison of the PPPs of Russia and other countries looks even clearer: in China, the official PPP is about 180%, in Kyrgyzstan – 330%. It's hard to believe that life in China is twice as expensive as in Russia, and it's just as expensive in Kyrgyzstan.
But even if we could adequately describe and evaluate price ratios, it would be incorrect to apply one PPP factor to two things as different as, for example, GDP and household income. And it's not that GDP consists of only about 50% of household income, and the rest is taxes and corporate profits. The fact is that the product composition of GDP does not correspond in any way to the consumer basket. In Russian GDP, 18% are hydrocarbons and 3% are agricultural products. In the consumer basket of the average Russian, products make up more than 50%, and fuel – less than 10%.
Financial analyst and journalist Sergei Golubitsky in 2016, in his article “The Utopia of ‘Real’ GDP and PPP,” called PPP GDP “the most popular (and dangerous!) incarnation” of GDP. He wrote :
“The biggest confusion in the term GDP when it is ported to the philistine information space is introduced by the so-called purchasing power parity (PPP, Purchasing Power Parity, PPP), which, due to the very serious conceptual costs of the hypothesis itself, distorts the GDP parameter beyond recognition. This is all the more regrettable because it is GDP at PPP – gross domestic product adjusted for purchasing power parity – that is the favorite parameter for interstate phallometry in the mainstream (especially in the propaganda!) press.
The good intention underlying the calculation of PPP, and blazing the road to reality distortion hell, lies in the hypothesis that the US dollar in the US is not equal to the US dollar in Brazil, India, or Russia. In other words, if in the United States you can buy almost nothing today for one dollar, in India you can have a hearty meal with the same money.
“If so, then this circumstance must be taken into account when comparing the GDP of different countries!” – the economists behind the PPP theory convince the world (the father of the theory of social economics, Carl Gustav Cassel, representatives of the Salamanca school, etc.) <…>
The PPP theory is based on the hypothesis of the existence of some natural exchange rate of currencies, at which purchasing power parity is established. In other words: if in New York a cup of coffee costs 5 dollars, and in Moscow 200 rubles, then the “natural exchange rate” should not be 70 rubles per dollar, but 40.
The fact that the difference in prices is not least explained by the cost of transporting coffee, customs duties, taxes and other “conditions” of a living economy, although PPP theorists are aware, is not taken into account in practice, because otherwise the model becomes more complicated to absolute practical impracticability.
It would seem that the mere circumstance that in order to calculate the “natural exchange rate” and obtain purchasing power parity has to model a chimerical picture of pseudo-reality (without taking into account transport costs, taxes, duties, government regulation) should be enough to remove the PPP hypothesis from applied economic knowledge and isolate it in its natural environment – a theoretical laboratory.
In economics, this was, in fact, the case until the PPP model leaked into the mainstream information space, where today it has taken a dominant position, at least in the context of GDP. GDP (PPP) has become the de facto standard for comparing the production of goods and services, ostensibly on the grounds that only accounting for purchasing power parity allows us to assess the “real” economic picture.
The idea of PPP in the context of GDP is implemented “from the opposite side”: instead of deriving a hypothetical “natural exchange rate”, in which the same product will cost the same in different countries, the difference in real prices is used to obtain a certain coefficient, which is then superimposed on the value of nominal GDP .
There are many different forms of applying PPP theory to the real economy: from classical consumer baskets to Big Mac and iPad indices, but they all share a fundamental flaw – after taking into account purchasing power parity, economic reality not only deforms, but ceases to be a reality at all.”