Russian President Vladimir Putin’s staunch ally Vyacheslav Volodin, chairman of the State Duma (lower house of parliament) toured Nicaragua, Cuba and Algeria July 20-22 to bolster Kremlin’s influence and rally states against the U.S.
To his hosts, Nicaraguan President Ortega and Cuban President Diaz-Canel, Volodin delivered a message from Putin, emphasizing historic Russo-Nicaraguan and Russo-Cuban ties and condemning Western sanctions.
On July 22 in Algeria, meeting with the speaker of Algeria's parliament, Ibrahim Boughali, Volodin said that after 10 years under American sanctions, Russia has become the fourth-largest economy in the world, while the United States lost its first position:
“We have been dealing with sanctions for more than 10 years, and I can say one thing: During this time, Russia has become the fourth world economy and the largest European economy. And those states that initiated sanctions against us, precisely the USA, have lost their leading position, dropped to second place.”
This is misleading.
Volodin did not specify the source of his claim, but he likely referred to the World Bank ranking of countries by their GDP per capita at purchasing power parity (PPP).
As of 2023, the World Bank ranked China first, the United States second, and Russia fourth in terms of GDP PPP globally.
At the same time, another World Bank global economy ranking for 2023 rated the U.S. the largest economy in the world, with a GDP of $27.3 trillion. It ranked the Russian economy 11th globally, valued at $2 trillion.
Why is such a difference? It is because of the measurement criterion applied when calculating the rankings – GDP PPP vs. a nominal GDP.
PPP measures the price of specific goods in different countries to compare currency purchasing power. It is the price ratio of a market basket between locations, using a basket with around 3,000 consumer goods, 30 government occupations, 200 equipment types and 15 construction projects.
Economic and financial institutions measure a country's economy by its gross domestic product (GDP), which is “the total monetary or market value of all the finished goods and services produced within a country’s borders in a specific time period,” such as a quarter of or a year.
They calculate nominal GDP by summing up the total value of goods and services produced, including market sales and some nonmarket production.
The internationally standardized economic ranking uses the nominal GDP as a rating criterion, and the U.S. remains the world’s largest economy with a GDP of $28.8 trillion, while Russia ranks 11th with $2 trillion, as per the International Monetary Fund report of April 2024.
The Kremlin’s claims about Russia’s economic successes “look unrealistic” and are “based on PPP calculations that are largely misleading,” Vladislav Inozemtsev, doctor of economics and special advisor to the Russian Media Studies Project at MEMRI, a Washington, D.C.-based think tank, told VOA.
Yet there is no consensus on the accuracy of nominal GDP vs. GDP PPP among economists.
Investopedia says that nominal GDP does not account for cost of living and inflation differences between the countries. It claims GDP PPP is better for comparing living standards, while nominal GDP is more useful for comparing national economies in the international market.
Other economists note weaknesses of GDP measured by PPP, which does not account for the quality of goods and services, taxes or transport costs. PPP exchange rates can be difficult to measure and may not reflect market rates accurately. Differences in product quality, safety and costs across countries are overlooked, leading to potential inaccuracies in economic comparisons.
The International Monetary Fund used the GDP PPP criterion in April to forecast the global economic ranking for 2024, placing the United States second after China and Russia sixth.
But the IMF forecast for 2024 using nominal GDP ranks the U.S. the world’s largest economy, accounting for about 26% of the global economy, and Russia 11th, with its economy totaling $2 trillion, or about 1.9% of the global economy.
The United Nations ranking in 2022 assessed the United States the world’s largest economy at $25.7 trillion, while the Russian economy was $2.2 trillion and ranked eighth in the world.