The national flags of the United States and China waved in front of a building.
The Eng Koon | AFP via Getty Images
China will overtake the United States to become the world’s largest economy in 2028, five years earlier than previously thought, as the two countries have recovered differently from the Covid-19 pandemic, a think tank said.
“For some time now, the economic and soft power struggle between the United States and China has been a major theme of the world economy,” said the Center for Economic and Business Research in an annual report released on Saturday. “The COVID-19 pandemic and its economic consequences have undoubtedly sparked this rivalry in China’s favor.”
CEBR said China’s “skillful management of the pandemic,” with its severe early lockdown and impact on long-term growth in the west, has resulted in China’s relative economic performance improving.
China expects average economic growth of 5.7% per year from 2021 to 2025 before slowing down to 4.5% per year from 2026 to 2030.
While the United States was likely to see a strong post-pandemic rebound in 2021, its growth would slow to 1.9% annually between 2022 and 2024, and then to 1.6% thereafter.
Japan would remain the world’s third largest economy in US dollars until it was overtaken by India in the early 2030s and Germany pushed from fourth to fifth.
The UK, currently the fifth largest economy according to the CEBR, would slide to sixth place from 2024.
Despite a success in 2021 by exiting the European Union’s internal market, the UK’s GDP in dollars has been projected to be 23% higher than France’s by 2035, aided by the UK’s lead in the increasingly important digital economy.
Europe accounted for 19% of production in the world’s top 10 economies in 2020, but it will be 12% by 2035, or less if there is a sharp divide between the EU and the UK, CEBR said.
The impact of the pandemic on the global economy is likely to translate into higher inflation rather than slower growth.
“We see a business cycle with rising interest rates in the mid-2020s,” it says, challenging governments that have borrowed heavily to fund their response to the COVID-19 crisis. “But the underlying trends, which have accelerated by then, will result in a greener and technology-based world as we move into the 2030s.”