InvestorQ : How reliable are the reports that the Chinese economy could overtake the Chinese economy sooner than expected?
Arusha Ray made post

How reliable are the reports that the Chinese economy could overtake the Chinese economy sooner than expected?

2 years ago

In fact, the Coronavirus pandemic may have done the trick. Now the Chinese economy is showing signs of recovery even as the US is likely to be stuck in negative growth for some more time. That only means that the big story of China overtaking the US to become the world’s largest economy could actually happen much faster than originally anticipated.

Instead of happening in 2030, as was originally anticipated, the largest and the second largest economies in the world may actually trade places by 2028 itself. That is because, China looks set for average compounded GDP growth of 5.7% a year between 2021 and 2025. Subsequently, it could slow to 4.5% compounded annual between 2026 and 2030.

The US, on the other hand, may bounce in 2021, but will slow down sharper after that. The US is expected to witness a strong post-pandemic rebound in 2021. However, in the three years between 2022 and 2024, the average growth is expected to slow down to 1.9% and then to 1.6% in the next 5 years after that. That could speed up the shift of positions.

Interestingly, it is expected that Japan would remain the world's third-largest economy until around 2033. By then, India is expected to overtake Japan in terms of economic growth putting India in third spot in terms of global GDP. During the same period, the ranking of UK is expected to fall from the fifth place to the sixth place.

In terms of GDP share, EU could be the big loser as growth stagnates across the region. For example, Europe which accounted for 19% of output in the in 2020, but will fall only account for 12% of global output by 2035. The pandemic is likely to certainly have one long term impact and that is likely to be in the form of higher inflation.

The Chinese optimism was best voiced by the Chinese President Xi Jinping who declared last month that the Chinese economy could very well double in size by the year 2035. That is largely because, while China was the first economy to suffer the pandemic blow, its recovery from the lows of the virus has also been equally rapid. That made the difference.