Mr. Sanyal is a member, Ms. Arora is a director and Ms. Sharma is a young professional at the Economic Advisory Council to the Prime Minister of India.
The relative position of different countries has changed dramatically over the last three and a half decades, especially when viewed in purchasing power parity (PPP) — a measure that strips out exchange-rate distortions to compare what money actually buys in each country. China’s share of world GDP in PPP terms has risen to 19.6 percent in 2025, almost the same as that of the United States in 1992. In our latest EAC-PM working paper, “World in Purchasing Power Parity,” we track four measures of relative economic weight in PPP terms since 1992, from when comparable data is available. The approach provides an overview unclouded by exchange rates and relative prices.
The 1992 league table for share of world GDP reads like this: the U.S. at the top with 19.7 percent, Japan a distant second at 8.2 percent, Germany third at 6 percent, Russia fourth at 4.9 percent (even after the disintegration of the U.S.S.R.), Italy fifth at 4 percent. China was sixth with 4 percent and India was ninth with 3.2 percent, behind the United Kingdom. By 2025 the order looks completely different: China (19.6 percent), United States (14.6 percent), India (8.2 percent), Russia (3.4 percent) and Japan (3.3 percent). China now accounts for almost one-fifth of the world economy. Indonesia, at seventh position, now has a larger share of world output than France or Britain.
The most uniform pattern in the paper is the decline in Europe’s share across most indicators. Germany’s share fell from just under 6 percent to 2.9 percent, and the IMF expects it to keep falling. France went from 3.8 to 2.2 percent, the U.K. from 3.3 to 2.2. Not one large European economy bucks the trend. This is a continent whose relative position in the world economy has roughly halved within a single working lifetime. Japan’s fall is steeper still, with three decades of stagnation compounded by demographics — from 8.2 percent of world output in 1992 to 3.3 percent now, projected to reach 3 percent by 2030.
Big changes are also visible in per capita income terms. India and China both stood at 18 percent of the world average PPP per-capita income in 1992, the joint lowest in the paper’s 35-country sample. China is now at 112 percent, above the world average, having overtaken India in 1993 and Indonesia in 2008. India is at 45 percent. Chinese per-capita income grew at a compound rate of 10.4 percent over the period against a world figure of 4.4 percent; India managed 7.3 percent. Korea moved from 1.5 times the world average to 2.5 times, which places it firmly in European company. America’s relative per capita income fell from four times the world average to 3.4 times. Japan’s per capita income has fallen to just a little above twice the world average. Most of the European countries, including Germany, France, the United Kingdom and Italy, had per capita income of more than three times the world average in the 1990s, but it has declined since then, even though Europeans are still relatively rich.
The savings numbers deserve equal attention to the headline GDP or per capita GDP figures. China alone now generates nearly one-third of world savings measured in PPP. No other single country has ever had this kind of concentration of savings. In 1992, China was in fourth position at 6.8 percent. At that time, the U.S., with a 15.4 percent share, contributed the largest share of savings, which went on to peak near 18 percent at the end of the 1990s before sliding to 9.4 percent today. Japan, which had the second-largest saving share at 11.5 percent in 1992, is now only 4.2 percent. Germany’s share fell from 6.6 to 3 percent. Most other European countries now have savings rates ranging between 1 and 2 percent. India is now the world’s second-largest pool of savings in PPP terms, at 10.3 percent, ahead of the United States — remarkable, given that its per-capita income is still less than half the world average.
Investment trends are similar to savings. China accounts for 29.5 percent of world gross capital formation, up from 6.4 percent in 1992. It is followed by the U.S., with a share of 12.1 percent, and India, with 10.8 percent. The gap between the two series is where the interesting economics sits. China invests less than it saves, which is the structural reason it runs a permanent current account surplus and exports capital to the rest of the world. India invests marginally more than it saves, which is the structural reason it runs a permanent current account deficit and depends on foreign capital to close the gap. Overall, the rise of China is the most dramatic economic phenomenon since 1992. It now accounts for almost 20 percent of world GDP, 32 percent of world savings and 30 percent of world investment. Even though its per-capita income is still lower than that of developed countries, the sheer scale of China’s share of the world economic system is striking. However, it is important to remember that for all its success, China has one major structural flaw: its demographics. That will be the topic of a future article.
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