China GDP to surpass US around 2035, years later than previously expected, Goldman Sachs predicts
Although the pace of China’s economic rise has slowed in recent years, it appears on track to end the United States’ lengthy run as the world’s largest economy by around 2035, according to the latest projection by economists at Goldman Sachs.
The new estimate is 10 years later than the investment bank had predicted in 2011. But economists Kevin Daly and Tadas Gedminas said that potential growth in China still remains significantly higher than in the US.
“China has already closed most of the gap with US GDP,” they said in a report published on Tuesday, adding that China’s gross domestic product has risen from 12 per cent of the US’ in 2000 to a little under 80 per cent.
China’s annual economic growth will be around 4 per cent from 2024 to 2029, compared with 1.9 per cent in the US, according to the report, which projects what the global economy will look like through 2075.
Factors for predicting GDP growth potential include the number of people in the workforce, the amount of capital they have to work with, and technical progress, according to the report.
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“Growth is projected to slow over time in most economies, owing to a smaller contribution from labour force growth, but this decline is expected to be particularly marked in China,” the economists said.
China’s annual economic growth could further slow to 2.5 per cent from 2030-39, which would be significantly down from the 7.7 per cent seen from 2010-19, according to their projections.
“Most of this slowdown is driven by demographic factors, and it results in China’s potential growth rate falling well below a number of its Asian peers – India, Indonesia, and the Philippines,” they said.
Global growth will average a little under 3 per cent per year over the next 10 years and will be on a gradually declining path, due to weaker population growth, the report predicts.
At China’s 20th party congress in October, Beijing vowed to “reach the per capita income level of a medium-developed country by 2035”, which means elevating its per capita GDP to at least US$20,000.
To fulfil the target, China’s annual GDP growth rate should be no less than 4.73 per cent, which government advisers say could be very difficult to achieve, due to the nation’s rapidly ageing population.
The slowing pace of convergence – the process of emerging economies catching up to developed ones – over the past decade has also pushed back the point when China becomes the world’s largest economy, said Daly, who is co-head of Central and Eastern Europe, Middle East and Africa economics at Goldman Sachs.
“This affects the projections for all countries, not just China,” he told the Post.
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The US dollar’s exceptional strength over the past 10 years is another reason for the 10-year revision in when China’s economy will become No 1, Daly added.
“So, the relative starting point is weaker for China than implied by our [earlier] projections,” Daly said.
But the US dollar’s strength versus the Chinese yuan is likely to diminish over the coming decade, providing more ground for China to overtake the US, according to the report.
The report also projected that the weight of global GDP will shift more towards Asia over the next 30 years, and that the world’s five largest economies in 2050 will be China, the United States, India, Indonesia and Germany.
In 2075, meanwhile, India will overtake the US to become the world’s second-largest economy, following China, according to the report.
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The report said protectionism and climate change are “particularly important” long-term risks for world growth and the convergence of incomes.
“Populist nationalists have gained power in several countries, and the supply-chain disruptions during the Covid pandemic have resulted in an increased focus on on-shoring and supply-chain resilience,” the report said.
While so far the trend is still a slowdown rather than a reversal of globalisation, the risk of a reversal is clear, it said.
“Globalisation has been a powerful force in reducing income inequality across countries, but to ensure that it continues to do so, greater efforts need to be made to share its benefits more equally within countries,” the report added.
