Although the U.S. and Chinese economies have been easing from Covid-19 lockdowns for more than two years, both economies face their own economic difficulties. If geopolitical conflicts cause prices to rise again, the U.S. economy may face the possibility of another interest rate hike. At the same time, China’s economic stagnation may force the government to further lower interest rates amid deflation and high youth unemployment. Will these policy actions really solve the world economic challenges of the future?
As shown in Figure 1, the U.S. and Chinese economies both grew moderately at an average rate of 1.7% and 1.0% between the first quarter of 2022 and the third quarter of 2023. The Conference Board showed in its October report that consumer confidence in the U.S. economy has declined for three consecutive months (see Figure 2). This reveals consumers’ skepticism about future business prospects, employment opportunities, and incomes. Although inflation now looks likely to fall to two percent on target, consumer purchasing power remains buoyant in the face of high prices. Consistent with continued consumer concerns about an impending recession, the Expectations Index remains below 80, signaling the likelihood of a recession in the first half of 2024.
China’s economy has also sounded the alarm, with both supply and demand facing multiple challenges. Not only are private consumption and investment falling, but the economy faces the biggest slowdown in import and export demand. lower import demand from China could have negative spillover effects on domestic demand given that local industries are no longer able to absorb large numbers of labor for output production. China’s weak recovery has forced some international economic institutions to continue to downgrade their growth forecasts.
