3 min read –
Discover or get a refresh on PPP –
Quick learning below.
As we can see in the attached picture, Asian economies are leading the world GDP growth forecast in 2025.
Some important countries are missing, especially some in Southeast Asia with high expectations for 2025 GDP growth such as :
Vietnam 6,2%
Philippines 6,1%
Myanmar 5,8%
Malaysia 4,3%
Thailand 3,7%
Singapore 3%
If you know why the IMF didn’t include those countries in the graphic, let us know at bonjour@cintasia.com.
Besides the GDP growth, another important figure in economics is GDP itself.
GDP is sometimes given, in real (nominal) terms and sometimes in PPP-adjusted terms (purchasing power parity).
And the figures can differ a lot depending on the real or adjusted terms.
World ranking can also differ quite a lot depending on the term used.
Creating some confusion.
Here is an explanation.
The difference between GDP in real terms and GDP adjusted for purchasing power parity (PPP) lies in how they account for economic activity across different countries.
Real GDP measures the value of all goods and services produced in a country, adjusted for inflation, allowing for comparisons over time within the same economy.
It reflects the actual output without the distortions caused by price changes.
On the other hand, GDP adjusted for PPP compares economic productivity and living standards between countries by considering the relative cost of living and inflation rates.
It uses a “basket of goods” approach to determine how much currency is needed to purchase the same set of goods in different countries.
To better understand the concept, imagine this basket of goods is only a Big Mac hamburger.
You can use the price of a Big Mac hamburger as a standardized product to gauge whether currencies are undervalued or overvalued relative to each other.
This concept is called the Big Mac Index and was created by The Economist in 1986.
It is an informal way to measure purchasing power parity (PPP) between different currencies by comparing the price of a Big Mac hamburger across various countries.
This adjustment, either based on a basket of goods or on a Big Mac, provides a more accurate picture of what people can actually buy with their income in their local economy, making it useful for comparing living standards across nations.
In summary, while real GDP focuses on inflation-adjusted growth within a single economy, GDP at PPP allows for meaningful comparisons of economic well-being across different countries by accounting for local price differences.
Here are some examples (2023-2024).
France
-Real GDP: USD 3 trillion
-GDP (PPP): USD 4.3 trillion
Indonesia
-Real GDP: USD 1.3 trillion
-GDP (PPP): USD 4.7 trillion
Singapore
-Real GDP: USD 514 billion
-GDP (PPP): USD 834 billion
Greater Jakarta
-Real GDP: USD 420 billion
-GDP (PPP): USD 1.3 trillion
Now, here are some interesting takeaways
– Adjusted to PPP, Indonesia’s economy is bigger than France’s.
– Greater Jakarta’s economy is about one-third of whole Indonesia.
Can you guess which city has a bigger economy—Greater Jakarta or Singapore?
– In real GDP, Greater Jakarta’s economy is almost as big as Singapore’s.
– Adjusted to PPP, Greater Jakarta’s economy is 50% bigger than Singapore’s !
Who would’ve thought?
If you export or want to export to Indonesia, understanding PPP can help you set competitive pricing strategies for example.
Real GDP focuses on inflation-adjusted growth within a single economy.
GDP at PPP allows for meaningful comparisons of economic well-being across different countries by accounting for local price differences.
Understanding both gives you a clearer picture of global economic dynamics.
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PS: What do these GDP numbers mean for you as you are looking to expand into Asia?
Share your thoughts at bonjour@cintasia.com or on LinkedIn (link below).
Picture : IMF (International Monetary Fund)
Source : worldeconomics dot com