Chinese and American consumers hold the key to prospects for a revival in global growth in the second half.
Demand from the world’s biggest economy is already propping up exports in the number two. Meantime, consumption in China contributed 60 percent to gross domestic product growth in the first half, dangling the prospect of an economic rebalancing that boosts demand for U.S. businesses in a market of 1.3 billion people.
In a world confronted by sluggishness in Europe as Greece battles to stave off exit from the euro, the combination of U.S. and Chinese shoppers both opening their wallets will prove to be a bright spot in the second half, according to Shen Jianguang of Mizuho Securities Asia Ltd. in Hong Kong.
“U.S. and Chinese consumers will be the key engine of global economic growth,” said Shen, Mizuho’s chief Asia economist and a former researcher at the European Central Bank and International Monetary Fund. “The Chinese engine is now either the U.S. consumer or the Chinese consumer.”
Rising demand from the U.S. for Chinese products and the resilience of domestic spending are strengths for an economy on course for its slowest full-year expansion in 25 years.
“Domestic consumption remained the key support for growth in the second quarter,” Liu Li-Gang, chief Greater China economist at Australia & New Zealand Banking Group Ltd. in Hong Kong, wrote in a note Wednesday after data showed China’s GDP expanded 7 percent in the second quarter from a year earlier.
Among developed markets, the U.S. is the bright spot for Chinese exports with the European Union and the Japanese economies still weak, Huang Songping, spokesman for China’s General Administration of Customs, said at a briefing Monday after data showed exports rose in June.
“Although the current recovery is weaker than expected, we expect Sino-U.S. trade will perform well in the second half,” he told reporters. “The U.S. recovery is good, consumption confidence remains stable and is helping drive the growth of our exports to the U.S.”
China is the largest source of U.S imports. They averaged $34.4 billion a month over the past year, almost double the level from six years ago, Chinese customs reports show.
Consumer spending accounts for 68.5 percent of the $17.4 trillion American economy, U.S. Commerce Department data show.
Uwe Parpart, chief strategist at Reorient Securities in Hong Kong, isn’t so sold on the U.S. consumption story, especially after seeing the “major disappointment” in June retail sales, which unexpectedly declined 0.3 percent. “The longstanding assumption that lower oil prices would stimulate consumption is not panning out,” he said.
Still, even slowing U.S. growth doesn’t look bad next to the continued struggles in Europe, Japan, and emerging markets.
China and the U.S., which account for more than a third of global output, remain dependent on one another. But China is so much bigger than it was in its years of export-fueled growth that it can no longer rely on U.S. demand to spur a pick up.
“The days of China’s export-led growth are long gone,” said David Loevinger, former China specialist for the U.S. Treasury Department and now an analyst at fund manager TCW Group Inc. in Los Angeles. “China will have no choice but to look to home-grown growth. Its economy is simply too big to be driven meaningfully by the rest of the world.”
— With assistance by Kevin Hamlin