A report showed that the US Gross Domestic Product unexpectedly contracted at an annual rate of 0.9% last quarterUS President Joe Biden speaks at the Eisenhower Executive Office Building in Washington, DC, U.S., on Thursday, July 28, 2022. (Bloomberg/Oliver Contreras)Bloomberg — It was a big talking point for President Joe Biden while he lasted: a forecast that the US economy will grow faster than China's for the first time since 1976.Biden highlighted it on a trip to Asia in May, with his national security adviser Jake Sullivan calling it "a pretty striking example of how countries in this region should look at the issue of trends and trajectories."But a report on Thursday showed that US gross domestic product (GDP) unexpectedly shrank at an annual rate of 0.9% last quarter, making it unlikely to outpace China's expansion this year.The US economy contracts for the second consecutive quarterIn mid-May, Bloomberg Economics forecast China to grow 2% this year, compared to 2.8% in the US, marking the first setback since 1976. Reflecting a better-than-expected second quarter in China , and from mounting evidence of a US slump, the team's latest forecasts are 3.6% for China and 1.5% for the US."We don't want to get too carried away by one-month or one-quarter figures," said Heather Boushey, a member of the White House Council of Economic Advisers, when asked about the growth prospects for the two countries.US GDP contracted in the first two quarters of 2022. Measured on a quarter-on-quarter basis, China contracted last quarter, but a rebound in June data raised the chances of a modest recovery heading into the second half.Biden and Xi Jinping Speak Amid Rising US-China TensionsOutperforming China would have been remarkable, given that US GDP is, measured per capita, more than five times that of its rival, leaving the Asian economy huge room to catch up.But a few weeks ago, with a new wave of Covid lockdowns hitting spending and a housing recession deepening, it seemed possible.Recovery potential (via Bloomberg)Beyond the data, the Biden administration is highlighting this week the movement of two economic laws that are key to the president's broader campaign to "win the 21st century economic competition" with China, as he said in his speech on the State of the Union earlier this year.“We want the US economy to be good for the American people in the long run,” Boushey said on Bloomberg Television's Bloomberg Balance of Power With David Westin.“That's why we're so focused on the chip legislation and the Inflation Reduction Act.Both, especially together, are going to boost American competitiveness.”On Thursday, the House of Representatives passed legislation marking the largest expansion of support for US industry and research in years, with $52 billion in subsidies and incentives for domestic semiconductor manufacturing.The bill now goes to Biden for his signature.In the Senate, a new compromise bill emerged this week, from Democrats only, that would include a series of clean energy investments, bolstering America's competitiveness in an area where it has lagged behind.Meanwhile, President Xi Jinping and his aides have begun downplaying the growth target of around 5.5% adopted by the government in March.The country must achieve "the best possible result" in terms of growth this year, while sticking to a strict Covid Zero policy, according to a statement after a meeting of the Politburo - the highest decision-making body of the Communist Party.Xi and his American counterpart could have the opportunity to discuss in person the relative growth rates of their economies.The two have asked their aides to plan a meeting during a phone call on Thursday, in what would be their first face-to-face conversation since Biden became president.© Copyright, Bloomberg Line |Falic Media© Copyright, Bloomberg Line |Falic Media