Isolating the contagion has China leading America again

In the five years following the onset of the GFC, annual real GDP growth in China averaged 8.6 per cent (on a purchasing power parity basis).

While that was slower than the blistering (and unsustainable) 11.6 per cent average pace of the five previous years, it was four times the US economy’s anaemic 2.1 per cent average annual growth over 2010-14.

The 4.9 per cent year-on-year figure for real GDP growth does not convey a full sense of the self-sustaining recovery that is now emerging in China.

Measuring economic growth on a sequential quarterly basis and converting those comparisons to annual rates – the preferred construct of US statisticians and policymakers – provides a much cleaner sense of real-time shifts in the underlying momentum of any economy.

On that basis, China’s real GDP rose at an 11 per cent sequential annual rate in the third quarter, following a 55 per cent post-lockdown surge in the second quarter.

China’s 33.8 per cent sequential (annualised) plunge in the first quarter was almost identical to the 31.2 per cent US contraction in the second quarter.

Based on incoming high-frequency (monthly) data, the GDPNow estimate of the Atlanta Federal Reserve puts third-quarter sequential real GDP growth in the US around 35 per cent.

While that is a welcome and marked turnaround from the record decline during the lockdown, it is about 20 percentage points short of China’s post-lockdown rebound and still leaves the US economy about 3 per cent below its peak of late 2019.

China’s response to COVID-19 borrowed a page from its playbook in 2008, when it ring-fenced its financial markets from the toxic fallout of the subprime crisis.

While China’s 11.2 per cent sequential (annualised) growth in the third quarter of this year builds effectively on its post-lockdown snapback, some lingering signs of weakness are evident in several key segments of consumer services – namely travel, leisure, and entertainment.