In a twist unforeseen at the start of the year, the U.S. economy has defied expectations, outpacing China’s growth trajectory. Previously, the consensus anticipated China’s rapid recovery post-COVID lockdowns and the U.S. grappling with a recession due to intense rate hikes.
Unexpected Shift in Growth Dynamics
However, the situation has reversed remarkably. China’s growth slowed to 0.8% in Q2, down from an inflated 2.2% in Q1 following the easing of lockdown restrictions.
In contrast, the U.S. expanded at 1.2% in Q2 and 1.6% in Q1. This discrepancy underscores the profound impact of the pandemic on economic predictions.
Ongoing Disparities and Global Implications
This contrasting performance seems unlikely to shift soon, compounded by persistent tensions over technology, cybersecurity, espionage, and trade.
According to the Atlanta Fed’s GDPNow tracker, the U.S. is poised for a robust 5.8% annualized Q3 growth, twice the pace of the first two quarters combined.
Conversely, China’s outlook dims as Barclays economists revise down Q3 and Q4 GDP growth projections to 2.8%, and lower the 2023 forecast to 4.5%.
This trajectory falls short of the government’s 5% target, raising concerns about China overtaking the U.S.
Divergent Narratives and Long-Term Prospects
Despite predictions by Goldman Sachs of China’s GDP surpassing the U.S. by 2035, doubts loom. Experts like Ilaria Mazzocco acknowledge China’s resilience but note that double-digit growth is history.
The narrative of China’s ascent and U.S. decline is shifting, potentially converging both economies’ growth rates.
Caution in Interpretation
Yet, a word of caution is essential. Overemphasis on the current narrative must be avoided. Adjustments in expectations could restore balance.
As the effects of Fed tightening and potential market surprises in China unfold, the yuan’s weakness, withdrawal from Chinese markets, and widening yield gap between U.S. and Chinese bonds reflect deep concerns about China’s economic challenges.