The U.S. and China are trading places in the economic growth race.
U.S. gross domestic product rose 12.2% in the second quarter of this year from a year earlier, outpacing China’s 7.9% gain.
The American edge should continue for at least the next few quarters, many economists say. That would be the first sustained period since at least 1990 in which the U.S. economy grew faster than China’s.
In the short term, the reversal reflects the difference in the two nations’ responses to the Covid-19 pandemic. The coronavirus circulated earlier in China and the country’s leaders quickly imposed quarantines in the pandemic’s epicenter of Wuhan and elsewhere. Chinese GDP fell by 6.7% in the first quarter of 2020 from a year earlier, while the U.S. GDP registered a small gain.
China’s aggressive response initially restored the country’s growth to a pace faster than America’s, which faced the economic brunt of the pandemic later and largely eschewed mandatory quarantines.
Government aid helped U.S. households accumulate $2.6 trillion in what Moody’s Analytics calls excess household savings—savings that exceed what would have been anticipated before the pandemic. That is nearly seven times as much as in China.
Moody’s forecasts that U.S. GDP growth will outstrip China’s for five consecutive quarters, starting in the second quarter of 2021. Capital Economics and Oxford Economics see a similar trend though they think it will last three quarters.
These are year-over-year comparisons because China doesn’t report quarter-vs.-quarter comparisons that are annualized and seasonally adjusted; the U.S. economy grew at a 6.5% annual rate in the second quarter. Economists’ estimates of Chinese quarter-vs.-quarter results vary widely but still tell a similar story of U.S. growth now outpacing China’s.
Andy Rothman, a China specialist at Matthews Asia, views the growth reversal as a blip along a road leading to China eventually becoming the world’s largest economy. The recent U.S. results are “like getting so excited about the Washington Nationals winning five in a row but they’re still five games below .500,” he said.