The Economist magazine now expects China’s economy to pass the USA in 2021

The Economist updates their long term forecasts for the US and China economies and now expects China to pass the USA in 2021.

When we first introduced the chart in 2010, we included a set of default assumptions for the following decade. We assumed that growth would average 7.75% in China over the subsequent ten years and 2.5% in America. We further assumed that inflation would average 4% in China and 1.5% in America. The yuan, we guessed, would strengthen by 3% a year on average. Based on this combination of assumptions, China would overtake America as early as 2019*. We are now four years into that forecast. How have we done? In the spirit of transparency that we urge of other would-be economic fortune tellers, we admit to being a little off, though not, it must be said, by much. It now looks like America’s eclipse will come two years later than initially anticipated†.

American growth has been a little lower than expected but inflation a bit higher, making that side of the projection quite accurate. The margin of error was bound to be larger with China, given the speed at which it has been developing. We were nearly spot-on with our growth forecast, though are now revising down our expectation for the remainder of the decade to a 7% average annual pace as the economy matures. The bigger surprise has been the halt of yuan appreciation this year—a policy dictated by the government, not the market—and the sharp drop in inflation as producer prices have fallen. A yawing trade surplus still points to a stronger yuan, so we maintain our forecast for sustained appreciation, though expect the upward march to come in fits and starts. As for inflation, excess industrial capacity remains a drag but is gradually being worked out of the system; we nudge our forecast down to 3%.

We have plugged our expectations into the chart above (updated August 22nd 2014) as the default assumptions. Totting it all up, we now see 2021 as the year of China’s re-emergence as world’s biggest economy

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