“In the fourth quarter of this year, we expect Asia’s growth to outpace that of the United States and Europe by about 450 basis points,” said Chetan Ahiya, chief Asia economist at the investment bank, during a webinar.
Citing reasons for his optimism, he said Asia is expected to achieve healthy growth rates while the West lags behind. that three major Asian economies – India, Indonesia and Japan – are emerging, as well as strong domestic demand.
Inflation in Asia “not strong”
“We certainly expect that the growth of these two economies will be limited by the fact that they have this significant inflation problem,” Ahiah said, referring to the United States and Europe.
He noted that central banks in the United States and Europe should move interest rates into a “restricted zone” to control inflation.
At the same time, Asia has not experienced the interest rate shock experienced by the United States and Europe, while inflation in Asia is at almost half the interest rate compared to the other two regions, according to Ahya.
The US inflation rate remained stable above the Federal Reserve’s annual target of 2%.
Inflation slowed to 4% in May – the lowest rate in two years, after peaking at 9.1% in June last year. The Federal Reserve did not raise interest rates this week after 10 consecutive increases that began in March 2022, as it decided to keep rates within a range of 5-5.25%.
Similarly in Europe, inflation in the euro zone fell to 6.1% in May, marking the lowest level since February 2022. The European Central Bank raised borrowing rates by -0.5% it a year ago at 3.5%, the highest level in 22 years.
“The inflation problem in Asia has not been serious. We believe that inflation in the region has peaked… By September or October, 80% of countries in the region had seen inflation return in the comfort zone of central banks. According to Morgan Stanley.
South Korea, Australia, India, Indonesia and Singapore are among the central banks in Asia that have tightened interest rates.
China… the main driving force
Another driver of Asian growth is China’s expected recovery in the second half.
“We expect China’s recovery to broaden in the second half of this year,” Ahiya said. The bank expects China’s economy to grow by 5.7% in 2023, up from 3% last year.
“We believe China’s consumption recovery is very much on track,” he said, adding that this would also lead to positive spread in other parts of the region.
China’s inflation data for May rose 0.2% year-on-year, while the producer price index fell 4.6%, marking the biggest annual drop in seven years.
Ahiya said that in the next three months, China will see a good level of spending.
The U.S. bank also expects the Chinese government to announce more stimulus in the form of easing real estate purchases, as well as the introduction of a $1 trillion infrastructure financing program.
India, Indonesia and Japan
India, Indonesia and Japan are also supporting the region’s overall growth rate, with India, Indonesia and Japan benefiting from their own booming domestic demand cycles.
“India has also implemented structural reforms over the past five years,” Ahiya said, “this is boosting private investment.”
He predicted India’s growth would reach 6.5% in 2023, overriding the International Monetary Fund forecast of 5.9% by 2023.
The economist said Indonesia’s implementation of traditional macroeconomic policies has also reduced inflation in the Southeast Asian country structurally, which he attributed to the government’s commitment keep the budget deficit below 3%. As a result, Indonesia’s public debt-to-GDP ratio is one of the lowest in emerging markets, at less than 40%, he says.
According to Morgan Stanley, Japan is in a “good position” to emerge from deflation, but does not have as severe inflation problems as the United States and Europe.
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