Fleeting Equality: The Relative Size of the U.S. and EU Economies to 2020

Adam S. Posen
Adam S. Posen Institute for International Economics

September 1, 2004

In May, the European Union celebrated the accession of 10 new members. In one fell swoop, by adding their combined GDP to that of the current EU-15, Europe had finally caught up to the United States in economic size. Both economies at present have an annual income of around $11 trillion. Their per capita incomes differ significantly, with the European Union spreading the same income over 170 million more people. Nonetheless, for symbolic as well as practical reasons, the achievement of parity between the EU and U.S. economies marks a milestone.

This parity, however, is not going to last. Given differentials in demographics (both fertility and immigration rates) and in productivity growth that will persist for the foreseeable future, American economic growth will outstrip European growth. Absent some change in current trends, the U.S. economy will be nearly 20% bigger than the enlarged European economy in 2020. This analysis paper projects the relative sizes of the U.S., the expanded EU, and the “rest of the world” [RoW] economies out to 2020 under three scenarios—and even under the one most favorable to Europe, parity will not be maintained. While size is not all that matters as an economic determinant of international influence, and certainly is not a sufficient statistic for well-being, there is some link between relative economic size and both military capabilities and broader influence. Moreover, even though size does not equate to economic well-being, relative economic performance is seen as important among publics and politicians and has often been a source of competition in the transatlantic relationship.

Two sets of simulations are shown (see accompanying figures in the appendix). The first set of simulations projects the percentage of global GDP on an annual basis (in Purchasing Power Parity [PPP] terms) represented by the United States, the enlarged European Union, and the rest of the world (including China and India). The second set projects the actual size of the U.S. and the enlarged EU economies on an annual basis (PPP) in billions of U.S. dollars.

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