Macro Insights Weekly: Contrasting recovery of China and the US
- The underlying drivers of the recovery however are starkly different
- In China, production and exports picked up, followed by domestic demand
- In the US, record stimulus measures helped push up domestic demand long before production picked up
- Looking forward, the US will pursue policies to revive investment…
- … while China’s focus will be on consumption
Chart of the Week: Covid resurgence in Asia
Between relatively slow pace of vaccination and the spread of new, more virulent variants, the Covid-19 pandemic has taken a turn for the worse. India’s daily cases top the world, with over 900k cases in the last five days. Malaysia and the Philippines have also seen an uptick, with Indonesia and Thailand in uncomfortable territory. More mobility restrictions and economic downside are looming.
Commentary: Contrasting China-US recovery
Despite rising concerns about variant-driven resurgence of the Covid-19 pandemic, the world’s two largest economies are undergoing robust rebounds. China and the US are on course to print sufficient GDP growth this year to make up for the lost output of 2020. While some of it is base-effect driven, real GDP growth of around 10% in China and 6%+ in the US would help considerably in supporting the global economy this year.
The two economies are however growing in rather contrasting manners. After the pandemic broke, China took strong measures to manage the pandemic, accompanied by only modest stimulus measures. After an unprecedented lockdown and resulting sharp decline in activities in 1Q, 2Q saw infections decline and factories reopen. Export order books began filling up from pent-up demand from the rest of the world, industrial production rebounded, and business confidence bottomed.
In contrast, the US proceeded with a rather lukewarm response to the pandemic, unsure about the right balance between lives and livelihood, with only partial compliance with safe practices necessary to keep the outbreak at bay. Fiscal and monetary authorities unleashed support measures of magnitude previously unseen. As a result, domestic demand picked up quickly, but production and exports lagged considerably.
The growth strategies going forward will also be different, in our view. The US will pursue policies to revive investment over the medium term, while China’s focus will be on consumption, which will help adjust its external account imbalances and provide a more sustainable footing for the economy.
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