Flourishing Asian economies risk overheating, says IMF

Rapidly expanding economies in Asia, such as China and India, are in danger of overheating, the International Monetary Fund warned yesterday.

Property bubbles, rising inflation and distorted economies still over-reliant on exports to the West are the main dangers facing the region and the wider world economy, it said.

In its latest Regional Economic Outlook: Asia and Pacific report, the fund said growth in "emerging Asia" - including China, India, Taiwan, Korea and Indonesia - would rise to around 8 per cent a year in 2011 and 2012, but only 1.7 and 2.1 per cent in Japan.

Anoop Singh, head of the IMF's Asia and Pacific department, said economic growth in Asia was expected to remain robust, but that this had created new risks, including inflation.

"Headline inflation has accelerated, and while this initially reflected higher commodity prices, pressures have now spilt over into core inflation and inflation expectations," Singh said. "While we expect inflation in many Asian economies to increase further in 2011 before [easing slightly] in 2012, risks remain on the upside."

Inflation stands at 5.4 per cent in China and 8.8 per cent in India.

Singh added that credit growth was not far from "boom" levels in a number of economies, while property prices continued to grow rapidly in a few regional markets.

However, the IMF said it remained premature to say that China's economy was overheating. China has raised interest rates four times since October, and its leaders have declared curbing inflation - which is at a two-year high - their most important task. The fund said that, in addition to higher interest rates, "exchange rate flexibility is a key line of defence against overheating".

Thus far, despite intense pressure from the US and its policy of "quantitative easing", which has helped drive the dollar lower, China still seems inclined to take only cautious action on its exchange rate.

- Independent