Children hold Chinese national flags at Tiananmen Square in Beijing, China. (Photographer: Qilai Shen/Bloomberg)

China's Economy Is Set to Overtake Combined Euro Area This Year

(Bloomberg) -- In another sign that the “Asian century” has arrived, China is on course to overtake the euro area in the size of its economy this year.

China’s gross domestic product is forecast to reach about $13.2 trillion in 2018, beating the $12.8 trillion combined total of the 19 countries that use the euro, according to data compiled by Bloomberg. In 2017, the euro cohort edged China by less than $200 billion.

“It’ll overtake and then persist,” said David Mann, Singapore-based global chief economist for Standard Chartered Bank. “It’s a function of the economic system, institutional infrastructure, education and hard infrastructure -- all of which have been moving in Asia’s favor.”

Asia -- including powerhouses Japan and India as well fast-emerging emerging nations such as the Philippines and Indonesia -- already crowded out the combined economies of North and South America in 2016, according to data compiled by Bloomberg. And the faster average growth pace in Asia is set to be a boon to that yawning gap for many years.

China’s leaders, convening in Beijing for the National People’s Congress, have doubled down on President Xi Jinping’s ability to keep growth stable, having removed the limit on his rule. The world’s second-biggest economy is weathering a gradual slowdown as Xi tries to manage a shift from the low-wage, high-exports model of the past to a more balanced mix where stronger domestic spending plays a greater role.

To do so, China faces numerous challenges. It will have to manage ballooning debt, financial markets need to open to global investors, and the government will have to adjust to a rapidly aging population. The UN projects that a quarter of its residents will be over 60 by 2030.

China should grow at a pace of at least 6 percent for the rest of this decade and keep up a 5 to 5.5 percent rate throughout the 2020s, Mann projected. He said it’s hard to argue that growth in the euro area would be much above 2 percent for the next couple of decades.

Here’s How Fast China’s Economy Is Catching Up to the U.S.

While it’s tricky to compare the growth data across large swaths of time, the best guess as to the last time China’s economy overshadowed Western Europe was around the mid-1800s, said Aditya Bhave, global economist at Bank of America Merrill Lynch, citing figures compiled by the Maddison Project at the University of Groningen in the Netherlands.

China’s rising trajectory would help return the global economy to a state that’s persisted through most of history, with the last 150 years being an outlier in which Western economies outweighed those in the East, Mann said.

“China’s rapid re-emergence as an economic powerhouse -- remember it used to be the world’s largest economy in the 1800s -- has enormous implications,” said Rob Subbaraman, head of emerging market economics at Nomura Holdings Inc. in Singapore.

“The impact of China on global financial markets and commodities is no longer trivial. But its economic size also brings economic tensions in terms of market share competition in trade and investment” as well as foreign policy tensions, according to Subbaraman.

NOTE: Bloomberg’s projections for this year compare nominal gross domestic product levels. For 2017, government-reported growth rates were used where available. Bloomberg survey forecasts were used for 2017 growth rates not yet reported, and for 2018 projections. GDP deflator estimates from the International Monetary Fund were employed to convert real GDP to nominal levels.

©2018 Bloomberg L.P.

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