Multilateral lending agency IMF on Tuesday said the global economic recovery is unbalanced and warned of overheating in some of the emerging economies.
”...the recovery is unbalanced across countries. While growth remains below potential in the advanced economies, emerging and developing economies are growing much faster — and some may soon be overheating,” IMF Managing Director Mr Dominique Strauss-Kahn said.
Mr Kahn was speaking at a meeting organised by the Monetary Authority of Singapore, the country’s Central Bank.
It may be recalled that while the US and Europe are struggling to recover, major emerging economies like India and China have been recording robust growth. Overheating refers to high growth leading to rise in inflation.
This happens when producers are not able to make enough goods and services to meet rising demand, and raise prices instead. This could eventually lead to sudden decline in demand.
The IMF chief further said that large and volatile capital flows from developed nations to emerging economies is another challenge.
“They (capital inflows) are complicating macroeconomic management and in some cases raising concerns about financial stability,” Mr Kahn added.
He said that without jobs and income security, there can be no rebound in domestic demand — and ultimately, no sustainable recovery. The IMF chief said emerging economies with large surpluses need to diversify the drivers of growth.
”...while the recovery is underway, it is not the recovery we wanted. It is a recovery beset by tensions and strains—which could even sow the seeds of the next crisis,” Mr Kahn added.
In the advanced economies, IMF is expecting subdued growth of 2.5 percent in 2011, with high unemployment and household debt weighing on demand.
In the emerging and developing economies, IMF has forecast 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 recording a growth of 8 per cent during 2009-10. The growth in 2010-11 is likely to be around 9 per cent, reverting to the pre global-crisis level.