The US and Chinese economies fell short of growth expectations for the first quarter of 2024.
U.S. economic expansion slowed as inflationary pressures mounted, but unemployment remained low. Meanwhile, China's economy showed signs of recovery in several areas, although some had slowed by March.
Since the end of the pandemic, the economic situations in the two countries have been different. The US is showing resilience with consumer spending and a strong job market. China's trajectory is complicated by a crisis in its real estate sector, weak foreign investment and weak consumer confidence.
The U.S. economy grew faster than expected last year on the back of a strong job market and solid consumer spending, with real GDP growth of 2.5%.
However, the economic growth rate in the first quarter of this year was only 1.6% compared to the same period last year, slowing from 3.4% in October-December 2023 and falling short of the 2.4% expected by Wall Street.
This was the slowest growth rate in two years, due to rising inflation and falling public and government spending.
“The economy is likely to slow further in the coming quarters as consumer splurges are likely coming to an end,” Jeffrey Roach, chief economist at LPL Financial, told CNBC.
Inflation has lowered savings rates and increased pressure on consumers, but Roach expects that trend to slow in the second half of the year as overall demand slows.
A strong job market continues to support the economy. The unemployment rate announced by the Labor Department is 3.8%, having ranged from 3.7% to 3.9% since August.
The International Monetary Fund (IMF) expects the United States to finish strong with an annual GDP growth rate of 2.7%, but projects unemployment to rise to 4% in 2024.
Meanwhile, China, the world's second-largest economy, posted annual growth of 5.3% in the January-March period, slightly above the previous quarter and 0.6% above analysts' expectations in a Reuters poll. Ta.
The first-quarter statistics come after China's National Bureau of Statistics announced that the economic growth rate in 2023 was 5.2%, achieving the goal of “about 5%” set by China's cabinet-like State Council this year as well. Announced.
However, a closer look at the first quarter data shows that the expansion in some sectors, such as exports, occurred mainly in the first two months. This raises questions about China's delayed post-pandemic resilience.
China's unemployment rate averaged 5.2% in the first quarter, continuing a trend of 5-5.3% since the beginning of last year.
China calculates its quarterly average unemployment rate as the ratio of unemployed to employed population. Notably, the government excludes people living in rural areas, who make up about a third of the population, from the report.
The IMF expects China's economic growth to be below target this year, with an overall unemployment rate of 5.1% and 4.6%.
Many experts, including former China's No. 2 Li Keqiang, have expressed doubts about the reliability of China's growth rate.
George Magnus, an economist at Oxford University's China Center, said this when asked whether China's cooling economy could still overtake the United States in the coming years. newsweek Since 2020, the difference in GDP between the United States and China has widened from approximately $5 trillion to $10 trillion in nominal terms.
He said, “The US's nominal GDP is growing at a compound interest rate of about 6.75%, and China's is growing at 6%.At this rate, China will never be able to catch up with the US.''
Nominal GDP measures the total amount of goods and services produced within an economy at current market prices, without adjusting for inflation.
As China continues to face economic headwinds such as deflation, the window for it to catch up with the United States is closing.
“I would say it's now more likely than not that there won't be any major crossovers at all,” Magnus said.
However, several industries in which China is a world leader grew significantly in the last quarter. For example, the production of electric vehicle charging stations increased by 41.7%, and electrical components increased by 39.5%.
“The Chinese government is hoping that 'new productive capacity' instead of real estate and infrastructure will lead to higher GDP growth. I think this is a pipe dream,” Magnus said. “It's more like islands of technological excellence floating in a sea of macroeconomic problems.”
The gap between the two largest economies widened further last year, according to data from major financial institutions such as the World Bank. China's economy is only two-thirds the size of its geopolitical rivals, down from 70% in 2022 and 76% in 2021.
newsweek has written to the Chinese Embassy in the United States for comment.
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