In recent years, the GDP between China and the United States has become closer. China's GDP is likely to surpass that of the United States and become the world's largest economy by 2028. However, the data for the first three quarters of this year came as a surprise, with US GDP growing 2% year-on-year4%, China's economy increased by 5 percent year-on-year2%。This trend shows that the size of U.S. GDP is expanding, in stark contrast to the previous straight line of shrinking. In fact, after the liberalization of the epidemic, China's economic growth momentum is strong, and the GDP in the first three quarters reached 5.%.2%, showing strong growth potential and potential. It is worth mentioning that compared with other developed countries, the GDP growth rate of the United States in the first three quarters was 24% is relatively high. So why is the GDP gap between China and the United States widening further?We believe that there are two main reasons:
1.High U.S. inflation pushes up GDP data: Since the beginning of this year, the U.S. has faced a high inflation rate, and although the Federal Reserve has been raising interest rates, domestic inflation remains high, with the latest inflation rate at 37%。High inflation has forced Americans to spend more money on goods, pushing up the size of GDP. Obviously, this also means that there is a certain degree of distortion in the US GDP data.
The impact of inflation is directly reflected in people's consumption. Due to inflationary pressures, ordinary Americans have to spend more money on goods to maintain a normal standard of living. As a result, the rise in consumer spending has had a positive effect, pushing up the size of GDP. However, high inflation has also brought a series of negative effects to the US economy. For example, high inflation pushes up GDP figures, but it actually reflects factors such as prices** and the cost of living, rather than the true level of economic growth. In addition, high inflation also has a negative impact on the allocation of investment and social resources, which may lead to industrial imbalance and waste of resources.
2.The appreciation of the US dollar has led to a widening of the GDP gap: since the beginning of this year, the US dollar has been strong**, which has depreciated the RMB exchange rate. As a benchmark for international comparisons, countries usually use the US dollar as the unit of pricing when comparing GDP. As a result, RMB-denominated GDP needs to be converted into dollar-denominated GDP, which is clearly not good for China.
The appreciation of the US dollar has adversely affected the Chinese economy in many ways. First, the depreciation of the renminbi has led to an increase in the cost of imports. China's export-oriented economy occupies an important position in the world. However, the depreciation of the renminbi has led to an increase in import costs, which may reduce the demand for imported goods and affect export business. Second, the depreciation of the renminbi has also put pressure on overseas listings and financing, exacerbating the debt pressure of enterprises. In addition, due to the uncertainty caused by the depreciation of the RMB, foreign investors' confidence in the Chinese market may be affected and the attractiveness of foreign direct investment may be reduced. Therefore, the impact of the appreciation of the US dollar on China's economy cannot be ignored.
While the GDP gap between China and the United States is widening further, we should also pay attention to the problems caused by the Fed's interest rate hike policy. Successive rate hikes could lead to the following three negative effects:
1.U.S. debt increases, interest expenses increase: As the Federal Reserve continues to raise interest rates, the size of U.S. debt has exceeded $33 trillion, and interest expenses have gradually increased. In this case, the risk of default on US debt is gradually rising, which poses a certain threat to the US economy.
The growing size of U.S. debt means that the U.S.** needs to pay more interest. An increase in interest payments could have a negative impact on fiscal balances, which could affect U.S. debt levels and fiscal health. In addition, the risk of default on U.S. bonds is also increasing, which may have an impact on global financial markets and further affect the stability of the global economy.
2.Financial institutions under pressure due to rising funding costs: Successive interest rate hikes have raised funding costs for U.S. financial institutions. There have been cases of small and medium-sized banks declaring bankruptcy because they could not afford the rising cost of financing. This phenomenon has raised concerns in the financial system and created some uncertainty for the banking and financial markets.
The impact of the increase in financing costs on financial institutions is all-encompassing. First of all, the rise in financing costs directly increases the operating costs of financial institutions, which may lead to a decline in profits or even losses. Second, rising financing costs may reduce the ability of financial institutions to lend, inhibiting the development of credit markets. This not only affects the financing environment of enterprises, but may also exert some pressure on the credit ability of consumers. Most importantly, if financial institutions are unable to withstand the pressure of rising financing costs, it may lead to the emergence of systemic financial risks, which will have an impact on the entire financial system.
3.Inflation is falling, entering a cycle of interest rate cuts: US inflation has fallen to 37%, and if it falls further in the future, the Fed is likely to slow down the pace of rate hikes or even start cutting rates. On the surface, the GDP gap between China and the United States may widen further in 2023, but in reality, a major reversal is likely next year, and the GDP gap between China and the United States will continue to narrow.
Changes in inflation are often one of the main considerations for monetary policy adjustments. If the Fed sees a decline in inflation, it may adjust its monetary policy to reduce tightening of the economy or even start cutting interest rates. A rate cut could boost the growth of the U.S. economy, boost business and individual confidence, and in turn stimulate investment and consumption. Therefore, the GDP gap between China and the United States is likely to reverse next year, and the economic competition between China and the United States is still worth paying close attention to.
Through the analysis of the reasons and future trends of the widening GDP gap between China and the United States this year, we can see that factors such as the high inflation rate in the United States and the appreciation of the US dollar are the key reasons for the widening of the GDP gap. However, with the end of the Fed's rate hike cycle and inflation falling, the situation could be reversed next year, and the GDP gap will narrow further. The outcome of the economic competition between China and the United States remains to be seen, however, China's strong economic growth potential will remain an important driving force for the world economy. For China, it needs to accelerate its transformation and upgrading, improve its innovation capabilities and core competitiveness, and achieve sustainable growth.