It has held this position since the 1890s, buoyed by technological, financial, and manufacturing technologies. In recent years, China has modernized and transformed into the fastest-growing economy. Today, the Chinese economy is second only to the US in size. The top two economies control 41.89% of global GDP.
What is GDP and why do we use it as a measure of economic success? GDP is a measure of the goods and services produced in a county during a specific period, usually a year. In a growing economy, the volume of goods and services grows. As the economy slows, the number of goods and services will also slow down or even contract.
Is the US Heading for a Recession in 2023?
GDP in the US has grown steadily since the financial crisis of 2009. It quickly rallied from the pandemic recession because of the vast and lasting government response. 2021 brought growth and prosperity. The country was hit by hard-hitting inflation, the highest since the 1980s.
The Conference Board of Forecasts expects economic difficulties in the US to expand in the wake of persistent inflation and the Federal Reserve’s aggressive fightback. The bank increased interest rates several times during 2022 by an accumulated 4.25%. The Board’s expectation for 2023 is a recession and a zero increase in GDP for the year. The forecast is for a short relatively mild recession with a rebound toward the end of the year.
When Will Inflation Drop?
Interest rate increases have affected the housing market, as mortgage repayments escalate. The rampant dollar will negatively affect US corporate profit margins. The inflation rate is likely to soften from the 2022 projection of 7.7% to a much lower 3.4%. Lower housing prices, high inventories, and decreasing demand will all help to moderate inflation.
Slowing inflation will allow the Federal Reserve to curb interest rate increases. The bank has signaled its intention to continue raising interest, at least in the first quarter of 2023. Thereafter, it is likely to hold interest rates and start to reduce rates in 2024.
US Economic Outcomes 2023 and Beyond
Employment growth in the US in 2022 has been nothing short of remarkable. November’s unemployment rate was 3.7%, so organizations battle to find the skills they need. Large layoffs in 2023 are unlikely because companies will want to retain the skills. Still, Morgan Stanley predicts that 2023 will end with a slightly higher unemployment rate of 4.3%.
The ageing population could present the US with one of the biggest financial headaches of the future. In an economy already at full employment, a declining workforce will lower productivity, and cause increased wages and inflation. Future government policies must center around expanding the tax base and building healthcare infrastructure for elderly care.
The outlook for 2023 is far from certain. The war in Ukraine, ongoing gas shortages, supply chain shocks, and the increased cost of energy will continue to weigh on prices and growth.
China’s recent pivot on its zero Covid-19 policy should increase global trade as the borders open and trade increases. The Chinese people are not as well-inoculated as the western world. An exposed population may succumb to severe illness. This could force a return to economic lockdown in China with knock-on effects on the global economy.
What about the long-term future? Will the US retain its current position as the world’s biggest economy? Global consultants PricewaterhouseCoopers, in their 2017 report called “The Globe in 2050” predict that India and China would overtake the US as the world's largest economies. The report forecasts a world economy that doubles between 2016 and 2042. Emerging markets like Brazil, China, India, and Indonesia will drive this growth.
Official figures by the Office for National Statistics (ONS) show that GDP dropped 0.1% during the three months to the end of June, a significant step down from the first quarter of the year when GDP increased by 0.8%. In June, GDP was down 0.6%.
The ONS reported that the country’s service sector was hit particularly hard, falling 0.4% over the quarter.
In a comment, ONS director of economic statistics Darren Morgan said, “With May’s growth revised down a little and June showing a notable fall, overall the economy shrank slightly in the second quarter.”
“Health was the biggest reason the economy contracted as both the test and trace and vaccine programmes were wound down, while many retailers also had a tough quarter.
“These were partially offset by growth in hotels, bars, hairdressers and outdoor events across the quarter, partly as a result of people celebrating the Platinum Jubilee.”
The Bank of England has warned that the UK may enter into a recession later in 2022 and believes this could be the longest economic downturn since the financial crisis of 2008.
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With ongoing chaos caused to industry in the east of the country and a blockade of Black Sea ports in the south, Ukraine’s GDP is projected to drop by approximately 45% in 2022.
The World Bank warned that Russia will likely also fall into recession, as will many other countries surrounding Ukraine, with some likely to soon require external support from international agencies to prevent them from defaulting on existing debts.
On Sunday, the World Bank said, “The war is having a devastating impact on human life and causing economic destruction in both countries, and will lead to significant economic losses in the Europe and central Asia region and the rest of the world.”
“It comes at a particularly vulnerable time for ECA as its economic recovery was expected to be held back by scarring from the pandemic and lingering structural weaknesses. The economic impact of the conflict has reverberated through multiple channels, including commodity and financial markets, trade and migration links, and the damaging impact on confidence.”
According to the Office for National Statistics (ONS), gross domestic product (GDP) growth was revised from 1.3% to 1.1% in Q3. Performance from health industries and hairdressers was weaker and the energy sector contracted more in September than previous estimates had suggested.
Nonetheless, upward revisions to 2020 means GDP in the three months to the end of September was closer to pre-pandemic levels. It came in at just 1.5% below the final quarter for 2019, an improvement from the previous forecast of 2.1% below. It is now estimated that annual UK GDP in 2020 fell by 9.4%, compared with a previous 9.7% estimate.
The largest contributors to the Q3 increase, in output terms, were the arts, hospitality, entertainment, and recreation as covid restrictions eased during the period.
Production and construction, however, both fell, driven by weak electricity, gas, steam, and air conditioning supply following on from high levels in May 2021.
New data from the Office for National Statistics (ONS) shows that GDP rose just 0.1% in the month, below the 0.4% forecasted by economists, thanks to ongoing supply chain disruptions and staff shortages.
The figure remains below the pre-pandemic level of 0.5% seen in February 2020 and suggests that the UK economy was struggling even before the emergence of the Omicron variant in late November.
The ONS said that services output grew back to its pre-pandemic levels, growing 0.4% in October. Meanwhile, output in consumer-facing services was up by 0.3% on the month largely due to an 8.1% increase in the wholesale and retail trade. However, output at hotels and restaurants dropped by 5.5%.
“Growth disappointed in October, reinforcing concerns about the resilience of the UK’s economic recovery to the Omicron variant and the impact of further restrictions,” Alpesh Paleja, CBI lead economist, said.
“We need to create consistency in our approach and build confidence by reducing the oscillation between normal life and restrictions as we learn to live with the virus and its variants."
“Meanwhile, supply pressures remain acute and further rises in inflation are looming. We expect growth to build further momentum ahead, but more action is needed to address longer-term challenges, including “scarring” from COVID and poor productivity."
The Office for National Statistics (ONS) said that gross domestic product (GDP) rose by 5.5% from April to June, having been revised up from the initial estimation of 4.8%. This means that GDP was 3.3% below where it was in the last quarter of 2019 before the start of the pandemic, against the 4.4% which had been previously estimated.
Household spending was the largest driver of the upward GDP revision, which contributed 4 percentage points of the 5.5% increase as lockdown restrictions eased in the spring, allowing outdoor dining and a return to in-person shopping.
However, although pent-up demand following the early 2021 lockdown saw Brits up their spending, more recent GDP figures suggest a marked slowdown in the growth recovery. According to figures from earlier this month, economic growth eased to 0.1% in July, down from 1.4% in June. Many fear that supply chain problems will continue to add to the slowing recovery.
Deputy national statistician at the ONS, Jonathan Athow, said: “The economy grew more in the second quarter than previously estimated, with the latest data showing health services and the arts performing better than initially thought.
“The revised figures also show households have been saving less in recent years than previously thought. Household saving fell particularly strongly in the latest quarter from the record highs seen during the pandemic, as many people were again able to spend on shopping, eating out and driving their cars.”
The Office for National Statistics (ONS) said that gross domestic product (GDP) increased by just 0.1% in July, a significant slowdown from the 1% growth seen the month before.
Many companies have faced problems with the pingdemic and shortages of materials. The construction sector has been hit especially hard with output dropping 1.6% in July. Retailers also saw declines and lawyers were affected by the tapering-off of the stamp duty holiday.
ONS deputy national statistician for economic statistics Jonathan Athow said: “After many months during which the economy grew strongly, making up much of the lost ground from the pandemic, there was little growth overall in July. Oil and gas provided the strongest boost, having partially bounced back after summer maintenance. Car production also continued to recover from recent component shortages.”
Mr Athow added: “The service sector saw no growth overall with growth in IT, financial services and outdoor events – which could operate more fully in July – offsetting large falls in retail and law firms.”
The arts, entertainment and recreation sector, however, saw a 9% increase following the lifting of social distancing measures on July 19.
Economists had predicted a slowdown in GDP growth in July. However, this was an average forecast at 0.5%, according to Pantheon Macroeconomics.
The country’s second-quarter GDP increased by 1.3% in the first quarter, quicker than the 0.6% growth seen between the first quarter of this year and the fourth quarter of 2020. However, this most recent quarterly increase has still proven to be slower than the 2.6% increase seen in the fourth quarter. In the first quarter, China’s GDP rose by 18.3%.
Despite China’s second-quarter GDP growth coming in lower than expected, the country’s June retail sales and industrial production grew faster than predictions. From a year ago to June, retail sales increased by 12.1%, exceeding the 11% forecast by Reuters. The country’s quickest-growing category was beverages, which was up 29.1% year-on-year. However, retail sales growth has fallen behind that of the overall economy, failing to reach analyst’s predictions for the first two months of the second quarter.
In May, consumption was down year-on-year in Wuhan, Yinchuan, Guiyang, and Shijiazhuang, according to research by Pinpoint Asset Management. The urban survey unemployment rate maintained a level of 5% in June. However, younger people were hit harder, with unemployment for 16 to 24 year-olds climbing back to 15.4%, the same figure seen in June 2020.
The ONS said gross domestic product (GDP) contracted by 1.6% in the first quarter of the financial year. A decline of 1.5% has been previously estimated. This puts GDP at 8.8% below its pre-pandemic levels at the beginning of the year where initial estimates had been 8.7%. However, the contraction is still substantially lower than the 20% drop which was seen during the UK’s first lockdown in spring 2020.
Monthly figures also demonstrate an impressive recovery. In February and March, GDP bounced back despite the UK’s third lockdown still being in place at the time. In April, GDP jumped 2.3% higher. The Bank of England’s outgoing chief economist Andy Haldane commented that the economy was going “gangbusters”.
The most recent data from ONS shows that UK households dramatically cut their spending in the first quarter, putting cash into savings instead. The household saving ratio increased to 19.9% where, in the previous three months, this figure was at 16.1%. The figure is the second highest on record after the 25.9% seen in the second quarter of 2020.
The UK economy is predicted to grow at the fastest rate since the second world war this year, according to a widely cited economic forecaster.
The EY Item Club has upgraded its forecast for GDP growth during 2021 from 5% to 6.8%, which would mark the fastest annual growth since 1941. This comes in the wake of relaxing COVID-19 restrictions and optimism that rapid progress with the country’s vaccine programme will enable a swift return to business as usual.
Consumer confidence also increased at the fastest rate in a decade during the first quarter of 2021 on this vaccine-driven optimism. The EY Item Club added that the improved short-term outlook means that the UK economy is expected to return to its pre-pandemic peak by the middle of next year, aided by a surge in consumer spending as households saved during lockdown.
Elsewhere, analysts at Goldman Sachs have predicted a growth rate of 7.8%, stronger than that expected for the US, where President Biden is spurring economic recovery with a multi-trillion-dollar stimulus initiative.
Further pieces of data have added to observer optimism for the UK economy. Item Club analysts revised down their unemployment forecasts from 7% to 5.8% by the end of the year, and the HIS Markit/CIPS Purchasing Managers’ Index found that the service sector grew faster than manufacturing in April for the first time since the pandemic began.
"The UK is primed for a sharp snap back in consumer activity,” said Ian Stewart, chief economist at Deloitte.
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"High levels of saving, the successful vaccination rollout and the easing of the lockdown set the stage for a surge in spending over the coming months."
The UK economy shrank by 9.9% in 2020, the worst performance among the G7 and the steepest annual decline seen in the country since records began.
China’s economy grew a record 18.3% in the first quarter of 2021 compared to the same period in 2020, new data has shown. Growth was also up from 6.5% in the fourth quarter of 2020.
The results mark the biggest jump in Chinese GDP since quarterly records began in 1992. However, the economy’s growth fell short of the 19% mark predicted by a Reuters poll of analysts.
China, which boasts the second largest economy in the world, was the only major nation to experience economic growth in 2020 amid a strong bounce back from the COVID-19 pandemic, maintaining high retail spending and exports.
European stocks were boosted by the news, with the FTSE 100 rising 0.5% after opening on Friday morning – rising above the 7,000 points level for the first time since February 2020. France’s CAC and Germany’s DAX also rose 0.2% and 0.3% respectively.
Asian stocks were also lifted by the news, with Japan’s Nikkei climbing 0.1% while the Hong Kong Hang Seng rose 0.6%.
US futures, however, saw a slump as European trading opened. S&P 500 futures were down 0.1%, Nasdaq futures were down 0.2%, and Dow futures were flat. The indexes’ gloomy outlook followed a day of near record highs as US economic data indicated a solid global recovery from the pandemic-induced recession.
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“The national economy made a good start,” a spokesperson for China’s National Bureau of Statistics said on Friday, attributing the spike in GDP to “incomparable factors such as the low base figure of last year and increase of working days due to staff staying put during the Lunar New Year” holiday.
"We must be aware that the Covid-19 epidemic is still spreading globally and the international landscape is complicated with high uncertainties and instabilities,” the Bureau cautioned.
The Biden Administration has proposed sweeping tax reforms to the OECD intended to limit multinational corporations’ ability to move profits overseas, in addition to a worldwide minimum corporate tax rate.
Plans leaked to the Financial Times showed that the administration is pushing for multinational corporations to be taxed not only on the basis of where they declare their profits, but where their customers are situated.
The administration’s proposals are designed to tackle the disproportionately low tax rates paid by international firms, including major US tech giants. Apple has become a prominent example, paying an effective tax rate of under 1% due to declaring its profits in Ireland.
Paul Monaghan, CEO of Fair Tax Mark, said that the proposed changes “would have a seismic impact on the likes of Amazon, Apple, Facebook and Google ... with billions of additional taxes paid in the US and across Europe.”
The move marks a significant shift away from past US policies, which proritised the tax sovereignty of nations.
In addition to this, the Biden administration is also backing the establishment of a global minimum corporate tax rate agreed upon between some of the world’s largest economies. The agreement is intended to stop countries from luring foreign businesses by offering tax discounts.
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Corporation tax in the US currently stands at 21%, compared to 19% in the UK and 12.5% in Ireland. The Tax Foundation estimates the worldwide average for statutory corporate income tax at 23.85%, or 25.85% when weighed by GDP.
The US’s proposals to the OCD came after G20 finance ministers agreed on Wednesday to work towards an international consensus on tackling tax avoidance.
