Banking Stress in the U.S. and Europe Bolsters Asia's Case
Morgan Stanley Asia economists, led by Chetan Ahya, point to recent banking stress in the U.S. and Europe as a factor that strengthens the case for Asia's outperformance. They note that tightening lending standards in these regions will weigh on domestic demand.
Asia's Sufficient Domestic Demand Amid External Constraints
Despite external demand recovery being constrained due to tightened lending standards in the U.S. and Europe, Ahya believes that Asia will still generate enough domestic demand to maintain growth differentials favoring the region.
Asia's Highest Growth Differential Since 2017
A 5% higher growth than developed markets would be the strongest growth differential for Asia since 2017, according to Morgan Stanley.
Subdued Rate-Hike Cycle in Asia Compared to US and Europe
To control inflation, the U.S. Federal Reserve and the European Central Bank have raised rates by 475 bps and 350 bps, respectively. However, the rate-hike cycle in Asia has been more subdued, Morgan Stanley notes.
China's Reopening and Other Large Economies Driving Growth
China's reopening is expected to benefit the rest of the region. At the same time, Asia's other three large economies – Japan, India, and Indonesia – all possess economy-specific factors that drive domestic demand, according to Morgan Stanley.