Asia’s rapid disinflation and growth outperformance
Published: 2022-11-23 10:30:25 | Written : Boualao Sophavady | Hits: 300 | Rating: 
BUSINESS TIME--The year 2022 was all about the fight against inflation, and 2023 will be about the aftermath - how economies stack up after having to fight inflation to varying degrees.
In 2022, Asia weathered the shocks better as the step-up in inflation was less than other regions, while the step-down in growth was more moderate. As we look to 2023, Asia is well positioned as we expect it to enter a rapid disinflationary phase and see outperformance in growth.
While inflationary pressures are expected to recede around the world in 2023, Asia's disinflation will be more rapid. By mid-2023, we estimate that inflation would have already declined back towards the comfort zone for 90 per cent of the central banks in the region.
With inflation on its way down, a majority of central banks in the region should be able to end their rate-hike cycles by Q1 2023, with four of them ending by Q4 2022. At the outset, the growth-inflation trade-off has not been as intense for Asian central banks. We have been of the view that central banks in Asia will not have to lift rates deeply into restrictive territory, and recent developments have increased our confidence that this will come to fruition.
The risks to the outlook are two-fold. First, if US inflation stays elevated for longer, it would lead to more tightening by the Fed than is expected, and could drive renewed strength in the US dollar. This, in turn, would prolong the rate-hike cycle in Asia, keep financial conditions tight, and exert downward pressures on growth. Second, a delayed reopening in China could have a non-linear impact on China's growth trajectory, with adverse spillover implications for the rest of the region.
We believe investors will be on the lookout to see how growth fares after the fight against inflation. After a less intense fight with inflation in 2022 as compared with other regions, we think that in 2023, Asia's growth will be able to outperform on the back of robust domestic demand.
We expect Asia's growth to improve from a trough of 3.6 per cent in Q1 2023 to 5 per cent in H2 2023. Growth differentials will swing back in favour of Asia, rising back towards levels last seen in 2017 to 2018.
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