Do Not Over-Heat

The IMF reports that powered by a resurgence in Asia, emerging markets, especially those of China and India are leading the world out of recession. In many emerging and developing economies, output is already above pre-crisis trends, suggesting that recovery is complete and expansion under way. But this brighter outlook is balanced by fears of possible asset bubbles produced by the flood of investment capital into the region.

Data suggest that inflation pressure is broadening. In several of the larger emerging market economies, headline inflation is running close to or above central bank targets. Furthermore, some economies are experiencing a credit boom.

The risk that food and energy price increases will start an inflationary spiral is much greater in emerging and developing economies than in advanced economies. In many such economies, monetary conditions appear very accommodative: real interest rates remain far below pre-crisis levels, and the extent of expected tightening seems limited relative to what is needed.


Tags assigned to this article:
chinaimf

You may have an interest in also reading…

Looking for an Easy Fix: The Great Banking Crisis Five Years Later

Greed, malfeasance, incompetence and a lack of both regulation and oversight brought the world perilously close to a financial Armageddon

Otaviano Canuto: Brazil, South Korea – Two Tales of Climbing an Income Ladder

The “middle-income trap” has captured many developing countries: they succeeded in evolving from low per capita income levels, but then

Robert Shiller: Making Sense of the Irrationality of Markets

The question of what motivates a trader to buy or sell shares at any particular moment is probably as old