23 days ago • 2 mins
The whole world expected China to overtake America as the world’s biggest economy sometime around the start of the next decade. But that’s looking more and more like a pipe dream, especially with the US widening its lead last year.
The American economy grew by 6.3% in nominal terms – that is, unadjusted for inflation – in 2023, outmuscling China’s 4.6% gain. Consequently, the size of China’s economy compared to the US fell to 65%, down from its peak of 75% at the end of 2021. And sure, some of that outperformance is because of the elevated pace of price gains in the US, but the figures also highlight a significant underlying trend: the US economy is emerging from the pandemic in a stronger position compared to China. And you can see this having an impact on the two countries’ stock markets. While US shares have hit all-time highs this month, Chinese equities are currently facing a bear market rout, with losses of over $6 trillion.
People didn’t expect things to go down this way. Many had predicted that the US economy would slide into recession last year because of the Federal Reserve’s aggressive interest rate hikes. Instead, falling inflation and a still-hot job market encouraged Americans to keep spending, which has shielded the economy from a downturn.
China, on the other hand, was expected to experience a strong rebound after the government removed its strict zero-Covid restrictions. But the country’s been plagued by a whole host of issues – its worst streak of deflation in a quarter-century, an ongoing debt crisis in the property sector, fading consumer confidence, rising joblessness among young people, and a shrinking (and fast-aging) population. What’s more, exports – once a critical pillar of growth – declined in 2023 for the first time in seven years.
All those factors have led China to downshift into a slower growth gear sooner than economists had anticipated, with many of them saying the country won’t likely wear the top-economy crown anytime soon. Bloomberg Economics, for example, now forecasts that the size of China’s economy won’t exceed that of the US until the mid-2040s. And even then, the group says, the lead will be slim and short-lived.
Disclaimer: These articles are provided for information purposes only. Occasionally, an opinion about whether to buy or sell a specific investment may be provided. The content is not intended to be a personal recommendation to buy or sell any financial instrument or product, or to adopt any investment strategy as it is not provided based on an assessment of your investing knowledge and experience, your financial situation or your investment objectives. The value of your investments, and the income derived from them, may go down as well as up. You may not get back all the money that you invest. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment advisor.