The United States in 2024 further solidified its position as the world's largest economy, with resilient consumer spending driving its continued lead over China for the third consecutive year—at least by one key measure. According to data released by the Bureau of Economic Analysis on January 30, 2025, US GDP grew by 5.3 per cent in 2024 before adjusting for inflation. In contrast, China's nominal GDP expanded by 4.2 per cent, as reported by the country's National Bureau of Statistics a few days back.
Source: Bureau of Economic Analysis
Note: Annual GDP, unadjusted for price changes
Nominal Gross Domestic Product (Nominal GDP) represents the total market value of all goods and services produced within a country's economy during a specific period. Unlike other GDP measurements, Nominal GDP is not adjusted for inflation or deflation, meaning it fluctuates based on changes in both economic output and price levels. As a result, nominal GDP tends to rise over time, reflecting both increased production and rising prices. In practice, Nominal GDP is often used to compare economic output to other variables, such as national debt, that are not adjusted for inflation.
The widening gap between the GDP levels of the US and China can be partly explained by their differing price challenges in recent years. In the US, inflation rates soared, leading to the Federal Reserve’s aggressive monetary tightening in 2022 and 2023, which has inflated its GDP figures. On the other hand, China has been grappling with deflation, as indicated by its GDP deflator showing a decline in prices since mid-2023.
Economists measure the relative sizes of economies in various ways. Adjusted for inflation, China’s economy has grown faster, with real GDP increasing by 5 per cent, compared to 2.8 per cent in the US. However, nominal GDP figures are often seen as more significant for assessing things like corporate and government revenues and trade flows.
Emerging nations like China often experience faster economic growth as they strive to close the gap with more advanced economies. In 2023, according to the latest World Bank data, China's GDP per capita stood at $12,614, compared to $82,769 in the US, highlighting China's vast potential for growth. However, Chinese policymakers face significant challenges, including a severe downturn in the property market and sluggish consumer confidence, which are hindering the country's economic momentum.
Despite being the world's second-largest economy after the United States, investors still classify China as an emerging market. The debate over whether China should be considered a developing or developed nation has persisted among researchers and experts, especially given its rapid economic rise and status as a global manufacturing powerhouse. China is by far the dominant player within the emerging market category, accounting for more than a quarter of the MSCI Emerging Markets Index.
At the 2023 BRICS summit in Johannesburg, Chinese President Xi Jinping stated, "China has been and will always remain a member of the developing countries."
A renowned US-based economist and China expert stated that China's economy is undergoing a challenging yet essential shift from infrastructure-driven growth to a technology-focused model. Meanwhile, the US continues outperforming, with its nominal growth rate boosted by above-target inflation. The race for the world's largest GDP remains competitive, but the US is now widening its lead.
The United States continued to showcase its economic resilience last year, standing apart from its developed-world peers. On January 30, 2025, the latest GDP report highlighted this strength, arriving just hours after France and Germany announced economic contractions in the final quarter of 2024.
A key driver of US growth was robust consumer spending, propelled by rising wages and steady employment gains. American payrolls expanded by over 2.2 million throughout the year, while inflation-adjusted average hourly earnings saw a 1 per cent increase in December compared to the previous year.
The rising US consumption has led to a surge in imports, further widening the already sensitive trade deficit. Between January and November 2024, the US merchandise trade deficit soared nearly $1.1 trillion. Preliminary data for December 2024, released on January 29, 2025, revealed a record-breaking monthly deficit of $122 billion.
China has been a key beneficiary of this trend, with US imports increasing by 2.2 per cent over the same period. Meanwhile, China's data showed that the world's largest manufacturing powerhouse recorded a staggering trade surplus of approximately $992 billion in 2024. Despite President Xi Jinping's repeated pledges to boost imports, sluggish domestic demand has made it challenging to achieve that goal.
Looking ahead to 2025, uncertainty looms over global trade dynamics. With Donald Trump's return to the White House, his threats to impose steep tariff hikes on US trading partners could have major implications for the global economy. Economists and policymakers around the world are closely watching how these developments unfold.
Information credit: Bloomberg, VoA
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