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(CNN) – For decades, China’s economy has grown much faster than that of the United States. That trend is likely to break in 2021 as the US recovery from the pandemic gains momentum.
Economists are rapidly improving their growth forecasts in the US as Covid vaccines accelerate and after Washington enacted a $ 1.9 trillion stimulus package that is much larger than many believed possible just ago. a few months.
Goldman Sachs calls for US GDP growth in 2021 of 6.9%, the fastest since 1984. Morgan Stanley is even more optimistic, predicting growth of 7.3%. That would exceed the Chinese government’s humble target of 6%. More importantly, these Wall Street estimates for the US pace are not far from the consensus forecast of 8.4% for China among economists surveyed by Refinitiv.
All of this means that America’s GDP growth could rival or even exceed China’s. This would be a remarkable achievement because the United States is a much more mature economy, and it was impressed by China’s explosive growth after the Great Recession.
“We’ll be in the ballpark, and I think America will probably be the leader,” said Joe Brusuelas, RSM’s chief economist.
For average Americans, this optimism indicates a stronger job market and better prospects for prosperity after a terrible 2020. Morgan Stanley expects the US unemployment rate to fall below 5% by the end of this year and by below 4% by the end of 2022.
China has beaten the United States every year since 1976
The last time the two countries’ growth rates were anything close was during the dot-com boom. In 1999, the US economy grew 4.8% and China expanded 7.7%, according to the World Bank.
The United States has not outpaced China’s GDP growth since 1976, World Bank statistics show.
Brusuelas recently improved his forecast for US GDP growth to 7.2% by 2021 due to the size of the US Rescue Plan and progress in defeating the pandemic. And the RSM economist said the risk is that he is not being optimistic enough.
“We could all be underestimating the expansion that is coming,” Brusuelas said. “This could literally be the largest expansion since the mid-20th century.”
That would be a stark contrast to the latest recovery.
In 2010, when the Great Recession hit, China’s 10.6% GDP growth quadrupled that of the United States. And in 2019, before the Covid eruption, China grew at almost triple the rate of the United States.
Of course, these are just forecasts. The US recovery could lose steam if vaccines have problems, Covid variants cause problems, or if another roadblock emerges.
And it’s important to note that if the United States rivals China’s growth this year, it will likely be exceptional.
China is a much younger economy, with demographic and productivity advantages that will lead to faster growth there in the medium and long term.
“If it happens, it is highly unlikely that it will be repeated beyond 2021, as China’s potential growth is higher than that of the US,” said Alicia García Herrero, chief economist for Asia and the Pacific at the French bank. Natixis.
‘The global locomotive’
Still, 2021 appears to be the year the United States replaces China as the biggest growth engine on the world stage, at least temporarily.
Oxford Economics expects the United States’ contribution to global growth in 2021 to be stronger than China’s, something that has not happened since 2005.
“The US economy will once again become the world’s locomotive. And it will help lift the rest of the world out of this Covid crisis,” said Gregory Daco, chief US economist at Oxford Economics.
Daco expects US GDP growth of 7% this year, and also wonders if economists are underestimating the pace of the rebound, as they did last summer when the pandemic subsided for a few months.
“People were surprised by the speed of the recovery in the wake of the unprecedented shock. We could be surprised to the upside again,” Daco said. “Sometimes optimism feels strange when you come out of a deep recession, but we have the right ingredients to make a pretty powerful cocktail.”
Georgia was a game changer
The US $ 1.9 trillion rescue plan is a major factor behind the optimism.
After the election of President Joe Biden in November, many economists thought that a divided Washington could only agree to a relatively modest stimulus package in 2021.
However, that calculation began to change after Democrats retaken the Senate in January by sweeping elections in Georgia. That opened the door to passing party laws to boost the economy.
The day after the Georgia races were called, Goldman Sachs raised its GDP growth forecast to 6.4%, up from 5.9% previously and well above the consensus of about 3.9%. Goldman Sachs predicted a $ 750 billion fiscal stimulus in February or March.
In reality, Washington ended up enacting a much larger stimulus package of $ 1.9 trillion, with stimulus checks of $ 1,400, improved unemployment benefits, tax credits for older children, and $ 350 billion in aid to state governments. and local.
The reopening of hopes is rising
Beyond the rescue of Uncle Sam, the economic outlook is getting a boost thanks to significant progress in defeating the pandemic. The acceleration in the launch of vaccines, along with the drop in deaths and cases, is raising hopes that the health restrictions that depress the economy could be lifted sooner than expected.
And that should trigger a huge pent-up demand among Americans to eat at restaurants, go to the movies, stay in a hotel, and get on airplanes. Many consumers have accumulated cash waiting for this moment. Morgan Stanley estimates that American households have accumulated $ 2.3 trillion in excess savings, money that can be withdrawn as the economy reopens.
The overall size of the US economy is now on track to reach its pre-crisis level in late March, Morgan Stanley said.
“The reopening is progressing, the vaccination rate is increasing and the job market is gaining momentum,” wrote the Morgan Stanley economists.
This story was first published on CNN.com “After Biden’s stimulus, US economic growth could rival China’s for the first time in decades.”
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