In 2003, the world’s five largest economies were the US, Japan and three European countries. Thirty years later three out of the top five economies will be Asian (India third and Japan fourth) and only one will be European (Germany). China is set to overtake the US as the world’s largest economy by 2032. This year, the feel-good factor in global economy has largely dispersed being replaced by volatility and uncertainty. Trade tensions have come to the fore, with the US and China imposing substantial tariffs on each other’s export sectors.
So far, the US economy seems undeterred and 2018 has been another year of strong growth. This is in part due to the tax reform package passed in 2017, which has brought forward growth. However, it leaves a serious budget deficit problem that is likely to balloon over time. This means that in the case of an economic downturn, the US will have less fiscal headroom to use in order to avoid a recession. China, on the other hand, has had more problems as the trade conflict weighs on an economy already under strain. In 2018, China finally seemed to be making progress in weaning its economy off the large volumes of debt that had been used to prop up growth after the financial crisis. The way China economy is moving forward it will not be a big deal to overcome US by the above mentioned period.