IMF warns of overheating in emerging economies

Written by: Pti
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Singapore, Feb 1 (PTI) Multilateral lending agency IMFtoday said the global economic recovery is unbalanced andwarned of overheating in some of the emerging economies.

"...the recovery is unbalanced across countries. Whilegrowth remains below potential in the advanced economies,emerging and developing economies are growing much faster�andsome may soon be overheating," IMF Managing Director DominiqueStrauss-Kahn said.

Kahn was speaking at a meeting organised by the MonetaryAuthority of Singapore, the country''s Central Bank.

It may be recalled that while the US and Europe arestruggling to recover, major emerging economies like India andChina have been recording robust growth.

Overheating refers to high growth leading to rise ininflation.

This happens when producers are not able to makeenough goods and services to meet rising demand, and raiseprices instead.

This could eventually lead to sudden decline in demand.

The IMF chief further said that large and volatilecapital flows from developed nations to emerging economies isanother challenge.

"They (capital inflows) are complicating macroeconomicmanagement and in some cases raising concerns about financialstability," Kahn added.

He said that without jobs and income security,there can be no rebound in domestic demand�and ultimately, nosustainable recovery.

The IMF chief said emerging economies with largesurpluses need to diversify the drivers of growth.

"...while the recovery is underway, it is not therecovery we wanted. It is a recovery beset by tensions andstrains�which could even sow the seeds of the next crisis,"Kahn added.

In the advanced economies, IMF is expecting subduedgrowth of 2.5 percent in 2011, with high unemployment andhousehold debt weighing on demand.

In the emerging and developing economies, IMF hasforecast much faster growth of 6.5 percent�with Asia(excluding Japan) expected to grow by 8.5 percent.

India has recovered fast from the global crisis recordinga growth of 8 per cent during 2009-10. The growth in 2010-11is likely to be around 9 per cent, reverting to the preglobal-crisis level.

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