Asia Faces Risk of Overheating, Needs Quality Growth

  • Quicker normalization of fiscal, monetary stances needed
  • Stronger currencies recommended as part of policy response
  • Future growth should be balanced and inclusive
  • Speaking at a symposium organized by the Carnegie Endowment for International Peace in Washington DC, Anoop Singh, the head of the IMF’s Asia and Pacific Department, said that as well as normalizing fiscal and monetary policies to deal with the risk of overheating, governments in the region need to ensure that the subsequent growth momentum remains balanced, of “the right quality, and sustainable.”

    “It is not enough for us to have a strong recovery. It must be sustainable and it must have the right quality,” he told an audience of journalist and experts.

    “Asia has significantly lowered poverty in the past decades and, looking ahead, the growth momentum must remain inclusive, and address rising concerns in some countries about income disparities. In the near term, rising global food prices are are an important issue in many countries,” he added.

    Threats to Asian growth

    Emerging markets have led the global recovery out of crisis for the first time ever, but a number of developments, including rising inflationary expectations, higher property prices, and strong credit growth, have raised concerns across many parts of Asia.

    Rising inflation is typically one of the clearest signs that an economy is overheating and in recent months, inflation in many countries in the region has climbed, fuelled by higher food prices. But food inflation is just one part of the story

    “Our sense is that core inflation is also rising in some parts of the region, and we see risks of spillovers into generalized inflation,” said Singh who also pointed to the growth in real wages off the back of falling unemployment and signs of skills shortages in the region.

    Property price rises stoke fears of bubble

    Although some upward pressures have abated in recent months following measures to cool property markets, surging property prices have been another cause for concern in a few regional economies. There is the risk in some countries of property bubbles developing,” said Singh.

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