Morgan Stanley says Asia will outpace the U.S. and Europe this year

Asia’s economic growth will outpace both the U.S. and Europe this year, led by strong domestic demand, according to Morgan Stanley.

“The big argument that we’ve been making … for Asia, including Japan, to outperform versus U.S. and Europe — is the fact that there is domestic demand strength,” Chetan Ahya, chief Asia economist, told CNBC’s “Street Signs Asia” on Monday.

“China is one. It’s going through a rebound like quite nicely because of reopening, but also for fiscal and monetary policy being supportive.”

Three other large Asian economies — India, Indonesia and Japan — are also showing robust domestic demand, added the economist.

“We are expecting the region’s growth to outperform by about 500 basis points by the end of this year, which is essentially in the fourth quarter of this year,” said Ahya.

His bullish forecast for the region correspond with the latest International Monetary Fund views that Asia Pacific remains a dynamic region despite a challenging year for the world economy.

The agency pointed out last week that Asia’s domestic demand has so far remained strong despite monetary tightening.

“We project the region will contribute more than 70 percent of global growth this year as its expansion accelerates to 4.6 percent from 3.8 percent last year,” the IMF wrote in a blog.

On Tuesday, China is expected to release gross domestic product data, which is estimated to have grown 4% in the first quarter of this year, according to a Reuters poll.

China’s recovery is “going better than everybody’s expectations,” said Ahya, and he doesn’t see inflation as a major risk for the country.

“Inflation is a lagging data point and I don’t think we should look at the inflation number and conclude that the recovery is not going on track,” he noted, adding China’s property sector is “rebounding so sharply” which will add to the growth momentum.  

More people in China want to buy houses again, according to a first-quarter survey recently released by the People’s Bank of China. The increase follows the end of China’s Covid controls. Central and local governments have also rolled out support for property purchases and developers in the last year.

The World Bank also expects East Asian and Pacific economies to grow more than it previously estimated, thanks to a sharp rebound in activities in China, noting that the region hasn’t been affected by global banking stresses.

India also shows strong growth potential due to cyclical factors, said Ahya.

“The banking system has been cleaned up, [the] corporate sector has delevered,” noted the economist.

As a result there has been a “nice acceleration in credit growth” because there is risk appetite seen in both borrowers and lenders, he added.

“India is also implementing supply side reforms, which are boosting  corporate confidence and reviving private investments,” Ahya noted. “India is a story of both cyclical and structural factors coming together.”

— CNBC’s Evelyn Cheng and Jihye Lee contributed to this report