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The EU Has Replaced the U.S. as the World's Largest Economy

By , About.com Guide

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In 2007, the U.S. lost its seat to the European Union (EU) as the world's largest economy. The EU's economy produced $14.4 trillion in goods and services, while U.S. GDP came in at $13.86 trillion. Combined, the two produce over 40% of the world's economic power, which totals $65.82 trillion. (Source: CIA World Factbook, Rank Order GDP)

These figures are measured using purchasing power parity, which takes into account the standard of living of each country. This provides a more fair and relevant measure of GDP.

However, the U.S. still has the largest economy of any single country. The next largest is China, at $7 trillion, followed by Japan at $4 trillion. The largest single EU country is Germany, at $2.8 trillion, which has been surpassed by India, whose GDP was $2.965 trillion in 2007.

What It Means to You:

The U.S. economy is growing, but just not as fast as the EU. Many analysts initially said that the EU "experiment" was doomed to failure, since these vastly different countries could never work together as a unified economy. Instead, the EU is so successful that areas such as Southeast Asia and Latin America are considerering unified economies.

The EU now has an economy of scale that eats into the comparative advantage the U.S. has traditionally enjoyed. Furthermore, the EU's currency, the euro, is now competing with the dollar as a global currency. Thanks to these competitive pressures, a U.S. recession could be the precursor to a lower standard of living that may not return to previous, stronger levels.

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