Risks originating from the U.S. and China threaten stable growth in Asia
― Global economic fragmentation may put downward pressure on growth ―

Asian economies will likely continue to recover as (1) recovery in services exports, (2) improvement in the employment environment, and (3) a lull in upward pressure on interest rates will support them. We expect overall Asian growth to be +5.3% YoY in 2023, on a par with the pre COVID19 pandemic level of +5.0%. However, deterioration of financial markets in the U.S. and the real estate market s in China could pose a risk. If either of these two economies were to fall into recession, Asian economies would suffer a significant downturn.

In addition, geopolitical risks stemming from the U.S. China confrontation remain. If tension between the U.S. and China escalates, Asian economies could be severely affected as the global economy may become more divided. The trend toward reshoring and friendshoring may also will not necessarily all be positive. Attention must be paid to the risk of adverse effects such as economic division and resulting moves toward exclusion and impeded development of emerging countries emanating from industrial relocation that ignores economic efficiency.

China: We expect the Chinese economy to recover rapidly due to the lifting of the zero COVID policy, with growth of +5.6% YoY in 2023, exceeding the government target of around +5.0%. However, from the second half of the year, (1) softness in goods consumption, (2) sluggish external demand, and (3) adjustment in the real estate market will hinder the economy. The government is expected to aggressively implement economic stimulus measures.

India: We expect growth in India for FY2023 to be solid at +6.3% YoY, supported by lower inflationary pressures and the expansion of the personal income tax exemption. However, there is a risk that higher energy and food prices due to extreme weather conditions will put downward pressure on the economy.

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