Recent government data revealed that the U.S. economy has outperformed expectations in the second quarter, thanks to robust consumer spending. Meanwhile, China’s growth has slowed, raising questions about its future economic trajectory.
According to World Bank statistics, the economic gap between the U.S. and China has widened significantly. Once anticipated to surpass the U.S. economy by 2030, China’s current GDP stands at around two-thirds of the U.S. figure, down from 70 percent in 2022 and 76 percent in 2021. This decline is primarily due to issues like a troubled property market, declining demand, and local government debts.
The U.S. economy registered a surprising annual growth rate of 2.8 percent in Q2 2024, as reported by the Bureau of Economic Analysis (BEA), significantly higher than the 2.1 percent forecasted by economists.
This growth, double that of the first quarter, was largely driven by increased consumer spending on various goods and services, including vehicles and household items. Private inventory investments and nonresidential fixed investments also played a crucial role.
Deloitte economist Robyn Gibbard anticipates a 2.4 percent overall growth for the U.S. in 2024. Nonetheless, several factors like high interest rates, ongoing inflation, and geopolitical tensions, particularly related to U.S. sanctions on China, could potentially hamper this growth.
On the inflation front, the U.S. has seen a reduction to around 3 percent as of June, the lowest rate in over three years, according to the Consumer Price Index report. The Federal Reserve, which has maintained interest rates at a 23-year high of 5.25-5.5 percent, is expected to deliberate on potential rate cuts, though decisions might not come until September.
Conversely, China reported a year-on-year GDP growth of 4.7 percent for Q2, a decline from 5.3 percent in Q1, indicating a slight slowdown. The National Bureau of Statistics revealed a 5 percent growth rate for the first half of 2024, although many economists approach these figures skeptically.
Despite setting an annual growth target of “around 5 percent,” former Premier Li Keqiang and other experts have questioned the reliability of these statistics. Consumer retail sales in China grew by only 3.7 percent year-on-year in the first half of 2024, a notable drop from the 7.2 percent increase seen in 2023. June’s retail sales saw just a 2 percent rise, marking the lowest level since the lifting of pandemic restrictions, according to Lynn Song, chief economist for Greater China at ING.