Even with the gloomy expectations and pessimistic outlook of recent years, global economic growth has managed to hold up relatively well. Kavan Choksi underlines that the global economy experienced several challenges in the last couple of years, including the COVID-19 pandemic, inflation, and the Ukraine conflict. These challenges have tested the resilience of countries across the globe, including the United States and China. However, while the U.S. did initially lag behind in 2020, it has managed to regain its pre-pandemic growth path to a good extent. The U.S. economy has experienced a remarkable turnaround, not just once but twice, and there is a possibility that it may even surpass its previous growth trend.
Kavan Choksisheds light on the post-pandemic trajectory of the economy of the U.S. and China
Subsequent to the severe initial setback, the United States was able to regain its previous growth trajectory owing to extraordinary stimulus measures. However, inflation and the rapid sharp rise in interest rates led the economy to deviate from its trajectory once again. Even with the scepticism in the economy, the U.S. managed to achieve a robust soft landing. It placed the country back on track toward its pre-pandemic trend for the second time, which indicated its truly impressive resilience.
The resilience of the United States can be compared to a flywheel rather than a limited, depletable resource for several reasons. Firstly, a robust diversification meant that as the goods overshoot faded in early 2021, and a continued recovery in services offset that drag. Secondly, the labour market strength was protected by a considerable backlog of demand for workers. Thirdly, household balance sheets were historically in a strong enough shape to provide Americans with room to consume even as their real incomes went down. These three key sources of resilience have been enough to withstand the impact of inflation on budget and income, as well as the rapid tightening by monetary policymakers. There is not much reason to assume that such resilience will come to a sudden stop. Moreover, near term, the return of real income growth is all set to push the economy. Over the long term, persistent tightness in the labour market is likely to drive increased productivity growth, as businesses shall be compelled to adopt technology in order to make up for the shortage of workers.
Kavan Choksi points out that China’s trajectory represents another remarkable turn of events. Initially, its recovery was the envy of the global community, however, the economy has since deviated from its pre-pandemic course, and returning to it appears to be a challenging endeavour. Even though the zero-COVID approach of China did deliver a picture-perfect trend recovery, it ultimately needed renewed lockdown that weighed on the growth of the economy. The economic model of China, at the same time, underwent a shift away from investment and toward consumption. The transition away from zero-COVID policies was anticipated to trigger a surge in pent-up consumer demand, driving China’s economy back to its previous trajectory. There was such confidence in this rebound that many believed the revitalized Chinese consumer would contribute to a further rise in global inflation during 2023.
Consumers in China, however, lacked spending power and confidence. Slumps in other areas of the economy, real estate in particular, precluded the hoped-for boom. However, even though a trend recovery looks harder now, China’s slowdown can be seen as a sign of overall success. After all, as economies grow richer, their ability to sustain high growth tends to decline.
