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Discussions of a technical recession in the U.S. economy are intensifying. From January to June 2022, after the release of negative growth data for two consecutive quarters in the United States, whether it has entered a recession has become the focus of widespread attention. In the face of this phenomenon, the Biden administration has vigorously denied the concerns caused by policy mistakes. In the past, it usually took about 7 months to judge a recession. However, with the midterm elections in November less than a few months away, speculation and discussion about the US economy entering recession has intensified.
The focus turned to the release of US gross domestic product data for April-June on July 28. The data shows two consecutive quarters of declines in real growth, a situation known internationally as a technical recession and often mechanically seen as a sign of recession. This has happened 10 times since 1949, all of which were eventually confirmed as recessions. If this is an exception, it will be the first time in 74 years, since 1947, after the end of World War II. Only in history were recessions in 1960 and 2001 that were not accompanied by two consecutive quarters of negative growth.
In the debate over whether the U.S. economy is in recession, the voice of former U.S. Treasury Secretary Larry Summers is in the spotlight. He believes that the Fed underestimates the risk of a spike in consumer prices. He noted that without a severe recession, inflation is likely to be unresolved. According to the usual law of the US economy, raising interest rates will lead to higher interest rates on US consumer and commercial loans, which in turn will increase the cost of using funds and push businesses and consumers to spend less to achieve the goal of lowering the temperature of the economy.
As the world's largest economy, a recession in the United States will have significant global repercussions. Not just because the U.S. economy accounts for more than 20% of the world's economy, but also because its financial markets are the largest in the world in size and influence. In addition, the US dollar is an international currency, and the Fed's monetary policy has a huge influence on the global financial market. As the Fed raises interest rates, the cost of using funds rises, and so does the cost of borrowing in the United States. However, given the credit society in the United States, the rising cost of borrowing may lead to a decrease in consumption, which in turn affects retail trade, which is one of the main reasons for the decline in economic growth. This decline in spending power will have a negative impact on China and the global economy.
Looking back at recent years, the United States has not only experienced multiple recessions, but also experienced the international financial crisis of 2008. This crisis is the first systemic crisis experienced by a developed region of the global economy since the Great Depression of the 2030s, and it poses a huge challenge to the US economy. In 2022, the US economy is facing the risk of a new round of recession. The Fed plays a crucial role in this process. Its mandatory economic cooling policy is aimed at curbing inflation, but it may also further exacerbate the risk of a recession. Therefore, in addition to the traditional phenomenon of reduced demand and shrinking international trade, the global financial market will also face a huge test.
At the same time, China's economic data has also received attention. In the first half of 2022, despite the impact of the epidemic, China's GDP increased by about 2.5% year-on-year, and in the second quarter, it saw a year-on-year growth of 0.4%. In contrast, economic data from the United States showed negative growth. However, it should be noted that China publishes year-on-year data while the United States publishes month-on-month data, and the two cannot be directly compared.
In general, whether the current US economy is entering a recession is still controversial, but it is undeniable that the economic situation of the United States, as a key player in the global economy, will have a profound impact on the world. The gap between the economic power of China and the United States does not seem to have narrowed in the first half of 2022, but has shown a trend of widening.
Despite the difficulties, China needs to face up to the challenges and work hard in this great power competition. Sustained economic growth and innovative development are a powerful bargaining chip for China to face the future.
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