Publish: 26 Dec 2020, 11:43 am
China will overtake the United States to become the world's largest economy in 2028, five years earlier than previously expected due to the two countries' contrasting recovery from the COVID-19 pandemic, a think tank said.
“For some time, an overarching theme of global economics has been the economic and soft power struggle between the United States and China,” the Centre for Economics and Business Research said in an annual report published on Saturday.
“The COVID-19 pandemic and corresponding economic fallout have certainly tipped this rivalry in China’s favour.”
The CEBR said that China's "skillful management of the pandemic" with its strict early lockdown and long-term growth in the West meant that China's relative economic output improved.
China looked set for average economic growth of 5.7% a year from 2021-25 before slowing to 4.5% a year from 2026-30.
While the United States was likely to have a strong post-pandemic rebound in 2021, its growth would slow to 1.9% a year between 2022 and 2024, and then to 1.6% after that.
Japan would remain the world's third-largest economy, in dollar terms, until the early 2030s when India overtakes it, driving Germany down from the fourth to the fifth.
The United Kingdom, currently the fifth-largest economy in CEBR, would have fallen to sixth from 2024.
However, despite a hit in 2021 from its exit from the European Union’s single market, British GDP in dollars was forecast to be 23% higher than France’s by 2035, helped by Britain’s lead in the increasingly important digital economy.
Europe accounted for 19 per cent of production in the top 10 global economies in 2020, but this would fall to 12 per cent by 2035, or lower if there is an acrimonious split between the EU and Britain, CEBR said.
It also said that the pandemic effect on the global economy is likely to show higher inflation, not slower growth.
“We see an economic cycle with rising interest rates in the mid-2020s,” it said, posing a challenge for governments which have borrowed massively to fund their response to the COVID-19 crisis.
“But the underlying trends that have been accelerated by this point to a greener and more tech-based world as we move into the 2030s.”