US becomes world’s biggest economy in 2023, beats China

WASHINGTON : The United States has overtaken China to become the world’s largest economy in 2023, with a 6.3 per cent rise in gross domestic product (GDP) compared to China’s 4.6 per cent gain. It was earlier predicted that China would outpace the US in economic growth. The US economy appears to be in a stronger position than China as it emerges from the challenges posed by the pandemic.

At the beginning of 2023, concerns were raised about the possibility of a US recession due to the Federal Reserve’s decision to raise interest rates in response to decades-high inflation.

In contrast, China was anticipated to experience a booming recovery as it fully reopened its economy post-Covid-19 lockdown.

However, recent GDP data has unveiled a different narrative, showcasing the US economy’s resilience.

The real, inflation-adjusted growth for the US in the fourth quarter of 2023 was 3.3 per cent, following a 4.9 per cent expansion in the third quarter.

China, on the other hand, faces challenges, including a prolonged real estate crisis, its worst deflation streak in 25 years, declining exports in 2023, and a surge in youth unemployment.

Local governments are burdened with excessive debt, and suspicions surround the accuracy of the claimed 5.2 per cent economic expansion by the Xi Jinping government.

Economists often gauge a country’s economic size using nominal GDP, where the US has now taken the lead.

While some consider purchasing power parity, which adjusts for price differences between countries, as another measure, nominal GDP is widely regarded as a more reliable indicator on the global stage.

A significant factor contributing to China’s economic challenges, according to Peterson Institute for International Economics President Adam Posen, is President Xi Jinping’s authoritarian rule, he told Bloomberg.

Posen argues that Jinping’s exercise of arbitrary power has heightened economic vulnerabilities, causing households and small businesses to hoard cash due to uncertainty about future developments.

Posen suggests that the US may witness a surge in productivity growth, allowing the economy to expand without generating inflation.

However, uncertainties remain about the Federal Reserve’s strategy to return US inflation to its 2 per cent target.