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| Predicting the future of the US or Chinese economy will depend on many factors. (Source: DW News) |
America in "golden status"
The world's largest economy grew at a much faster pace than expected and inflation continued to decelerate in the fourth quarter of 2023, according to a report from the US Department of Commerce. Thus, the US has avoided a recession that analysts had thought would inevitably occur in 2023.
In the final quarter of 2023, the US Gross Domestic Product (GDP) reached 3.3%. This increase is higher than the 2% growth forecast by experts previously.
Not only that, the core personal consumption expenditures (PCE) price index - the Fed's preferred inflation measure that excludes energy and food prices - increased 2% in the fourth quarter, in line with the inflation target set by the US Federal Reserve (Fed).
"The growth and inflation data reflect the 'golden state' - strong growth and falling inflation. We are expecting a soft landing this year," said Beth Ann Bovino, chief economist at US Bank.
The US economy is expected to grow 2.5% in 2023, much higher than Wall Street investors and analysts had expected at the beginning of the year.
The main driver of the US economy’s growth over the past year has been continued strong spending by the US consumer. After a long period of gloom, people in the world’s largest economy are starting to feel somewhat better about inflation and the economy. Personal consumption by Americans increased 2.8% in the fourth quarter of 2023 compared to the same period last year.
According to CNN , American consumers are spending freely for one reason: The US government has spent nearly $5 trillion to directly support households in the form of stimulus checks, increased unemployment benefits, tax credits, etc.
Meanwhile, the pandemic was a time when people spent less because most services were closed, leading to a large amount of savings. When the economy reopened, people started spending like a "compressed spring".
According to senior economist Joseph Gagnon of the Peterson Institute for International Economics, the impressive level of American consumption is partly due to the stimulus money still flowing through the economy.
In addition, state and local government spending increased 3.7% and federal government spending increased 2.5%.
It can be affirmed that the above spending figures are an important source of contribution to GDP growth.
“The economy has defied all the doom and gloom forecasts and has consistently outperformed forecasts over the past year,” said Dan North, chief economist at Allianz Trade Americas.
China finds it difficult to break out
A year ago, the world's expectations for these two economies were completely different.
The US economy is expected to fall into recession in early 2023, as the Fed continues to raise interest rates to curb inflation at its highest level in decades. In contrast, China is expected to recover strongly after authorities reopened the economy following the Covid-19 pandemic.
"However, through 2023, the results of the two economies underscore a broader point: the US economy is emerging from the pandemic in a better position than China's," Bloomberg wrote.
China's economy is on track to meet its annual growth target of 5.2% in 2023, government data showed.
Still, Beijing is struggling under the weight of a years-long property crisis and its worst deflation in about 25 years. Exports, once a key growth pillar for the world’s second-largest economy, have weakened in 2023.
Meanwhile, youth unemployment is soaring and local governments are saddled with too much debt. With these "headwinds", the world's second largest economy is unlikely to make a breakthrough.
Wide space
In October 2023, the South China Morning Post assessed that the gap between the world's two largest economies had widened somewhat this year.
At the same time, Bloomberg Economics also predicted that China's GDP would not be higher than that of the US until the 2040s. But the gap would be very small and then Washington would surpass it.
Before the Covid-19 pandemic, the news agency It has been predicted that Beijing will soon be the largest in the world by the early 2030s and then continue to hold this position.
Citing current GDP figures and economic performance, Mr. Eswar Prasad at Cornell University (USA) affirmed: "The strong performance of the US economy and the 'headwinds' that are hindering China prove that the road for Beijing to surpass Washington is still far away."
According to Yahoo Finance , China's economic growth has given the country enormous geopolitical influence in recent decades. The end of that influence would have major implications for the rest of the world.
“That could mean trade, finance and geopolitics could remain US-centric for longer than expected,” Yahoo Finance assessed.
“All the talk of China becoming the world’s largest economy by GDP has been put on hold, if not indefinitely,” said Josh Lipsky, a former adviser to the International Monetary Fund (IMF).
It can be said that predicting the future of the US or Chinese economy will depend on many factors such as sudden changes in geopolitics or technological breakthroughs...
On the US side, the Fed’s campaign to get inflation back to its 2% target is far from over. Despite the positive economic data, there is still a risk that the Fed will keep policy too tight for too long, causing a recession. Therefore, Beijing may still have a chance to surpass its biggest rival. However, at the moment, this seems unlikely.
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