Japan’s growth higher than US

Oksana Patron

17 February 2023

Both emerging and developed pockets of Asia are expected to see higher growth than the United States this year, with analysts predicting the US growth to come in lower than Japan’s for the first time in over two decades, Franklin Templeton said.

According to its paper “Macro Perspectives”, although the US recession is now anticipated by many as milder than previously thought, investors will be attracted to looking for new opportunities outside the US, with Japan and China in particular offering right circumstances for active investors.

This has been underpinned by a generally milder inflation across Asia, with Japan experiencing inflation and positive real interest rates for the first time in over 20 years and China finally coming out of COVID-19 lockdown, a move expected to boost consumption and improve global growth prospects.

Emerging markets were generally about to see some tailwinds, with both debt and equity markets across this asset class to see more favorable conditions thanks to a combination of relatively stronger growth rates, tempered inflation and the potential that the US dollar may have peaked.

At the same time, US inflation will be trending lower while Europe was still about to see its inflation higher, but Franklin’s chief market strategist, Stephen Dover, cautioned that “the fight isn’t over yet” and .

“Our economists disagree on how quickly and how far inflation will fall. The market consensus suggests US inflation will run at roughly 3% for the full year. Internally, we have a healthy debate on how quickly inflation will fall and whether it will get to the US Federal Reserve’s (Fed’s) 2% target,” he said.

According to the paper, this would be also a good time for investors to increase fixed income allocation as this asset class was now providing income again however there were a quality bias.

“Rates are near a peak, and 2023 may be a year of positive returns for fixed income. We see a general shift toward larger fixed income allocations no matter how one is currently positioned,” Dover added.

“We believe investment grade and sovereigns are particularly attractive in this environment, with continued economic uncertainty perhaps providing opportunities on a selective basis in areas like high yield.”