Not too intense inflation helps Asian economy "surpass" the US and Europe

Morgan Stanley's chief economist for Asia Chetan Ahya emphasized that by the fourth quarter of 2023, Asia's growth rate will outperform the US and Europe.

Kinh thế châu Á sẽ vượt Mỹ và châu Âu bằng cách này

Asia's economic growth will surpass that of the US and Europe by the end of this year. (Source: CNN)

Explaining the above statement, Mr. Ahya said that China - the region's largest economy - will recover broadly by the end of 2023. Meanwhile, three other major Asian economies, India, Indonesia and Japan, are also showing strong increases in domestic demand.

One bright spot that makes Asia's recovery stronger than that of the US and Europe, according to Mr. Ahya, is that inflation is "not as fierce" as the other two regions.

Here, central banks do not need to tighten monetary policy too much, as inflation is only about half that of the US and Europe.

In the US, inflation fell to 4% in May, its lowest rate in two years, after peaking at 9.1% in June 2022.

The US Federal Reserve (Fed) has started raising interest rates monthly since March 2022. After 10 consecutive rate hikes, in its policy meeting held on June 14-15, the Fed decided to keep interest rates at 5-5.25%, citing some promise in the fight against inflation.

Similarly, in Europe, Eurozone inflation fell to 6.1% in May, marking its lowest level since February 2022.

However, the European Central Bank (ECB) gave no indication of stopping its action, with the region's interest rate currently at 3.25%, its highest level since November 2008.

But central banks in Asia have started cutting interest rates, including South Korea, Australia, India, Indonesia and Singapore.

Another driver supporting Asia's growth is China's expected recovery in the second half of this year.

Morgan Stanley sees China's recovery expanding further in the second half of this year and forecasts economic growth of 5.7% in 2023, nearly double last year's 3%, Ahya said.

Supporting overall growth in the Asia region are India, Indonesia and Japan, all three of which are experiencing positive domestic demand recovery cycles.

Ahya predicts India’s growth will reach 6.5% in 2023. And Japan is in a “sweet spot” of escaping deflation, while not having the severe inflation problems of the US and Europe.

Source