Chinese GDP growth in Q1 2021 suggests that the US economy will likely grow faster than expected.
This week is marked by the US and Canadian Gross Domestic Product (GDP) releases that will show how the two economies performed in the first quarter of the year. It will be interesting to compare these with the Chinese Q1 2021 economic growth which rose by 18.3% in the quarter.
According to economists, two consecutive positive quarters are needed for the economy to exit recessionary conditions. The theory of the business cycle tells us that the economy picks up when the sentiment is extremely negative, therefore only contrarian traders are willing to bet during the trough of the business cycle, while most prepare to wait for signals pointing to economic expansion. GDP growth is such a signal, and the Chinese data suggests that the economic recovery from the COVID-19 pandemic will be much stronger than anticipated.
The Chinese Economy Bounces Back Strongly
For many years, China’s economic growth rates have been bigger than the growth rates of the developed world. While the developed world’s GDP growth has typically been a couple of percentage points per year (or less), Chinese economic growth has been in double digits.
We can compare this quarter with the first quarter of 2020 when the Chinese economy contracted by 6.8% as a result of the COVID-19 pandemic. This was the largest quarterly contraction since the 1970s, but the subsequent year’s performance from such a low base is still nothing short of impressive.
Retail sales grew by 34.2% in March, when compared on a year-on-year basis. Moreover, the consumption of services picked up strongly, with online sales of services rising by more than 60%. Furthermore, the industrial sector rose by 24.4% in the first quarter of the year, with manufacturing leading the way.
The GDP growth is excellent news not only for the Chinese economy but also for the world because China is a big importer of raw materials from all over the world.
Judging by the strong economic growth seen in China, we can assume the US GDP this week will likely beat expectations of 6.5% growth. In this case, the US dollar and stock market should reflect the strength of the US economy.