Japan’s Mount Fuji seen on the Tokyo skyline on January 1, 2011.
Kazuhiro Legs | AFP | Getty Images
Growth in Asia is anticipated to surpass growth in the US and Europe by the end of the 12 months as the region has been largely spared rate of interest shocks, Morgan Stanley said.
“We expect growth in Asia will exceed the US and Europe by about 450 basis points by the fourth quarter of this 12 months,” said Chetan Ahya, chief economist at investment bank Powers.
Citing reasons for his optimism, he said Asia is anticipated to deliver healthier growth rates while the West lags behind. Furthermore, the second half of this 12 months could see a broad recovery in China, while the three big Asian economies – India, Indonesia and Japan – are also showing solid domestic demand.
Inflation in Asia ‘not as intense’
“We definitely expect growth in these two economies to be constrained by the undeniable fact that they’ve a serious inflation problem,” Ahya said, referring to the US and Europe.
He added that central banks in these markets have to introduce rates of interest into restrictive territory to bring inflation under control.
“Asia has not experienced the rate of interest shock that the US and Europe have had,” he said, adding that inflation in Asia is nearly half that of the other two regions.
The US inflation rate stays well above the Fed’s annual goal of two%.
Inflation slowed to 4% in May lowest in two years, having peaked at 9.1% in June last 12 months. The Federal Reserve gave up on raising rates of interest this week as the fight against inflation showed promise.
The issue of inflation in Asia was not so intense. We imagine inflation in this region has peaked.
Chetan Ahya
Chief Asian Economist at Morgan Stanley
Just last month, the central bank made the tenth consecutive rate of interest hike in a 12 months, marking the fastest monetary policy tightening the Fed has undertaken since the Nineteen Eighties.
Similarly in Europe, Eurozone inflation fell to six.1% in May, the lowest level since February 2022. The ECB raised reference rates from -0.5% a 12 months ago to three.25% in May, the highest since November 2008 r.
“The inflation problem in Asia was not so intense. We imagine that inflation in this region has peaked,” he said. “Until we’re in September [or] October, 80 percent [the] countries in the region would see inflation return to the comfort zone of central banks.”
Central banks in Asia which have cut rates of interest include South Korea, Australia, India, Indonesia and Singapore.
China consumption ‘on target’
One other driver of growth in Asia is the expected economic recovery in China in the second half of the 12 months.
“We expect China’s recovery to expand in the second half of this 12 months,” Ahya said. The bank forecasts superpower growth of 5.7% in 2023 in comparison with 3% last 12 months.
“We imagine China’s consumption recovery is on target,” he said. He said it will surely have positive spillovers in other parts of the region as well.
Skyscraper in Jakarta, Indonesia, June 10, 2023. Indonesia, implementing orthodox macroeconomic policies, has also structurally lowered inflation in the Southeast Asian country.
Nurphoto | Nurphoto | Getty Images
Ahya said Chinese markets should see a superb level of spending over the next three months.
The bank also expects the Chinese government to announce more stimulus measures in the type of easing purchases in the real estate sector, in addition to provide an infrastructure financing program value a couple of trillion dollars.
China slashed its key rate of interest on Thursday, lowering its one-year medium-term credit facility (MLF) by 10 basis points. On Tuesday, the People’s Bank of China lowered the seven-day repurchase rate, a sort of short-term rate of interest, from 2% to 1.9%.
India, Indonesia and Japan
The general growth rate in the region can also be supported by India, Indonesia and Japan, which have their very own domestic demand recovery cycles.
“India has also been implementing structural reforms over the past five years… which is driving private investment up,” Ahya said.
He predicted that India’s growth can be 6.5% in 2023, replacing the International Monetary Fund’s forecast of 5.9% by 2023.
Indonesia’s implementation of orthodox macroeconomic policies has also structurally lowered inflation in the Southeast Asian country, an economist said, attributing this to the government’s commitment to keeping its budget deficit below 3 percent. He said this has led to Indonesia’s public debt-to-GDP ratio being one in all the lowest in emerging markets at below 40%.
Morgan Stanley is of the opinion that Japan is on its solution to leaving deflation behind, but it surely doesn’t have inflation problems as severe as the US and Europe.
“This creates an environment in which the economic machine works.”
— Jihye Lee of CNBC contributed to this report.