Will US and China Growth Rates Reverse After 46 Years?

This Year’s Growth Rate Expected at 2% in China and 2.8% in the US... Limitations of State-Led Growth in Zero-COVID China

[Photo by EPA Yonhap News]

[Asia Economy Reporter Park Byung-hee] Amid growing concerns that China's zero-COVID policy will hamper the Chinese economy this year, there is even a forecast that the U.S. economic growth rate could surpass China's for the first time in 46 years. This implies that the U.S. could become the growth engine of the global economy instead of China, drawing attention to future developments.

On the 24th (local time), Bloomberg Economics predicted that China's economic growth rate this year will be limited to 2%. In contrast, the U.S. economic growth rate is expected to reach 2.8%, surpassing China's growth rate for the first time since 1976.

The 2% figure falls far short of the 5.5% target set by the Chinese government for this year. This will be the first time since the late 1990s, when the Chinese government began setting economic growth targets, that the target is significantly missed. The 5.5% target for this year was also the lowest ever set.

Bloomberg Economics pointed out that although China is implementing fiscal and monetary expansion policies and easing regulations to stimulate the economy, the zero-COVID policy will hold back China's economic growth. While the U.S. is suffering from the highest inflation in 40 years, it is expected to perform better than China based on a solid labor market and consumer spending.

Regardless of whether China allows the U.S. to overtake it this year, concerns are growing that the Chinese-style growth model has reached its limits. The state-led growth model that China has adhered to makes its economy vulnerable to external shocks. The Chinese economic structure, which relies excessively on real estate, is also evaluated as vulnerable to crises.

Bloomberg Economics has notably given a low forecast for China's economic growth rate. Recently, major global banks have lowered their forecasts for China's economic growth rate due to the zero-COVID policy, but most estimates were around 4%. UBS gave one of the harsher assessments among major banks but still forecasted 3% growth for China this year. The largest U.S. bank, JPMorgan Chase, recently projected 3.7%, Goldman Sachs 4%, and Citigroup 4.2%. The International Monetary Fund (IMF) also revised its global economic outlook in April, forecasting China's economic growth rate at 4.4% this year, higher than the U.S. rate of 3.7%.