The Global Recovery Now Has Two Big Engines

China’s trade surplus was $6.45 billion in January. Some economists believe that China’s import rise were partly due to higher prices that the People’s Republic must pay for commodities. Another part of the increase is due to “true” demand. China’s consumer economy may finally be taking hold. The Chinese middle class, which has been a savings class, may finally be starting to purchase significant amounts of imported goods from the United States and other countries with their rising wages.

China’s economy is now the second largest in the world based on GDP. Consumer activity could become a larger part of that if the trade surplus trend continues. That along with strong exports should keep China’s economy expansion at 8% to 10% presuming inflation and some measure of trade protectionism from the West does not cripple its growth.

The Wall Street Journal panel of economists recently said that 2011 GDP growth will happen more rapidly than expected. “The 51 economists polled—not all of whom answer every question in the survey—expect gross domestic product will be 3.5% higher in the fourth quarter of 2011 than a year earlier, up from the 3.3% increase they projected in last month’s survey. That would be the largest increase since 2003,” the Journal reported. Based on consumer and business confidence, the growth may be even faster. The 2011 tax cuts and an even modest increase in employment could tip the US economy into really rapid growth, particularly for a nation with GDP of $15 trillion.

It was only half a year ago that US government and private sector data made a 2011 recovery uncertain. Economists may still refuse to consider unemployment and the damaged housing market enough which would make their optimism misplaced. Presumably, the WSJ economist panel took those things into consideration and believes that the American consumer is tired of austerity and business believes that the earnings improvement of the last two quarters can be maintained.

The US economy was supposed to be what kept global GDP growth modest this year and next. It turns out that may not be true. American demand for goods and services should help the Chinese economy. Germany’s growth rate has improved rapidly as its exports have surged. Its effects on worldwide growth are small but proof that GDP recovery among large nations has quickened when Japan is backed out.

The recession shattered every economy to some extent. The pieces may be coming back together again faster than expected. Global GDP now runs on two large engines, as the US recovery takes an unexpectedly positive turn.

Douglas A. McIntyre