Anticipating China's Economic Deceleration: Potential Hurdles in Surpassing the US Economy

Anticipating China's Economic Deceleration: Potential Hurdles in Surpassing the US Economy

05 Sep, 2023

 

Anticipating China's Economic Deceleration: Potential Hurdles in Surpassing the US Economy

 

As China's confidence wanes, the prospect of it surpassing the United States as the world's largest economy has dimmed, with some experts suggesting it may never achieve this milestone, according to a report from Bloomberg.

The report indicates that China's Gross Domestic Product (GDP) is unlikely to overtake that of the United States until the mid-2040s, and even then, the lead will be marginal before a potential decline. Prior to the pandemic, predictions were more optimistic, expecting China to take the top spot by the early 2030s.

In a research note released on Tuesday, Bloomberg Economists stated, "China is shifting to a slower growth trajectory earlier than anticipated. The post-Covid rebound has lost momentum, largely due to a deepening property market crisis and diminishing confidence in Beijing's economic management. Weak confidence could persist, posing a long-term drag on growth potential."

China, currently the world's second-largest economy, is now expected to experience slower growth, with projections of around 3.5 percent in 2030 and 1 percent or less by 2050, significantly lower than earlier estimates of 4.3 percent and 1.6 percent, respectively.

In 2021, China's economy grew by a modest 3 percent, one of its slowest rates in recent memory, primarily due to economic restrictions and a real estate crisis. While there was optimism for improvement this year as the country fully reopened, declining exports and worsening real estate conditions have dampened the recovery. Furthermore, economists surveyed by Bloomberg have revised their growth forecasts for 2024 downward, anticipating growth to fall below 5 percent.

This revised outlook coincides with global reevaluations of how to engage with China which may be approaching a peak in its global influence. The United States and the Group of Seven (G7) nations are increasingly scrutinizing structural challenges within China, seeing opportunities that could bolster the West's position against a geopolitically weakened rival, all while considering the broader implications of China's slowdown. The disruptions in commodities and stocks this year are already reflective of these developments.

China also grapples with more profound, long-term issues, including its first population decline since the 1960s, raising concerns about declining productivity. Regulatory crackdowns and geopolitical conflicts with the United States and Western governments have further eroded confidence.

In contrast, the United States appears to be performing better than many economists had expected just a few months ago. A robust labor market, strong consumer spending, and moderate inflation have helped the U.S. economy avoid an immediate recession. Bloomberg Economics predicts U.S. growth to reach 1.7 percent in 2022–2023, gradually declining to 1.5 percent by 2050 in long-term projections.

 


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