Jan 21, 2010
World Bank Says Asia Faces Asset Bubbles, Overheating Risks
VNBusinessNews.com - Developing Asian economies face the risk of asset bubbles or overheating as the region’s growth outpaces the rest of the world this year, the World Bank said.
Developing East Asia, which excludes Japan, Hong Kong, Taiwan, South Korea and Singapore, will expand 8.1 percent this year, faster than a November estimate of 7.8 percent, the Washington-based lender said its Global Economic Prospects report today. South Asia will grow 7 percent in 2010, it said.
Asia is leading a recovery from the deepest global recession since World War II after policy makers cut interest rates and governments announced more than $950 billion of stimulus measures. Some Asian central banks are already raising borrowing costs or taking steps to remove the excess cash in their banking system to fend off inflationary pressures.
In East Asia, “downside risks facing the region have diminished owing to improvements in the global financial environment and positive growth developments,” the World Bank said. Capital inflows may spur the “risk of yet another round of asset bubbles, this time in emerging markets, the bursting of which could carry adverse effects over the short and medium term.”
Economies including South Korea and Hong Kong are facing rising asset prices, consumer credit and corporate loans, spurred by record-low interest rates and government stimulus.
China last week unexpectedly raised the proportion of deposits that banks must set aside as reserves as a credit boom threatens to stoke inflation and create asset bubbles. Vietnam raised its benchmark interest rate
by one percentage point to 8 percent in the last quarter.
China Effect
China’s economic expansion will underpin an export-led revival for the rest of the East Asian region, according to the report. East Asian exports are forecast to grow 6.6 percent this year and 8.8 percent in 2011, the lender said.
“The recovery in business investment
is expected to be gradual because excess capacity will first have to be worked out,” the World Bank said. “Recognizing that prospects for export-led recovery are less favorable than in the past, policy is likely to shift further toward fostering growth in household demand, helping, in turn, to offset the profile of weaker government spending.”
China’s economy is forecast to expand 9 percent this year and next, according to the World Bank. Malaysia and Thailand will return to growth this year, while the economies of Indonesia and Vietnam are expected to accelerate, it said. East Asian economies expanded 6.8 percent last year, the World Bank estimated.
Inflationary Pressure
In South Asia, policy makers will be “particularly responsive” to signs of building inflationary pressures because of a strong aversion to food-price increases, the World Bank said.
“Expected progressive tightening of monetary conditions over the forecast horizon will contribute to an easing of inflationary pressures by 2011 across the region,” it said. “External demand for goods and services is anticipated to recover, while improving consumer and business confidence, combined with the lagged effects of expansionary monetary and fiscal policy measures and a positive turn in the inventory cycle, should contribute to strengthening domestic demand.”
India’s economy will probably grow 7.6 percent this calendar year and 8 percent in 2011, according to the report.
The World Bank said capital inflows to South Asian economies could also lead to an appreciation of their currencies and hinder exports.
“Failure to mop up excess liquidity in banking systems or to bring down the region’s large fiscal deficits could lead to higher inflationary pressures,” according to the report.
Another risk faced by South Asia is reduced remittances as growth in the Middle East “could surprise on the downside,” hurting migrant workers in the Gulf, the World Bank said. (Bloomberg)
World Bank Says Asia Faces Asset Bubbles, Overheating Risks
VNBusinessNews.com - Developing Asian economies face the risk of asset bubbles or overheating as the region’s growth outpaces the rest of the world this year, the World Bank said.
Developing East Asia, which excludes Japan, Hong Kong, Taiwan, South Korea and Singapore, will expand 8.1 percent this year, faster than a November estimate of 7.8 percent, the Washington-based lender said its Global Economic Prospects report today. South Asia will grow 7 percent in 2010, it said.
Asia is leading a recovery from the deepest global recession since World War II after policy makers cut interest rates and governments announced more than $950 billion of stimulus measures. Some Asian central banks are already raising borrowing costs or taking steps to remove the excess cash in their banking system to fend off inflationary pressures.
In East Asia, “downside risks facing the region have diminished owing to improvements in the global financial environment and positive growth developments,” the World Bank said. Capital inflows may spur the “risk of yet another round of asset bubbles, this time in emerging markets, the bursting of which could carry adverse effects over the short and medium term.”
Economies including South Korea and Hong Kong are facing rising asset prices, consumer credit and corporate loans, spurred by record-low interest rates and government stimulus.
China last week unexpectedly raised the proportion of deposits that banks must set aside as reserves as a credit boom threatens to stoke inflation and create asset bubbles. Vietnam raised its benchmark interest rate
by one percentage point to 8 percent in the last quarter.
China Effect
China’s economic expansion will underpin an export-led revival for the rest of the East Asian region, according to the report. East Asian exports are forecast to grow 6.6 percent this year and 8.8 percent in 2011, the lender said.
“The recovery in business investment
is expected to be gradual because excess capacity will first have to be worked out,” the World Bank said. “Recognizing that prospects for export-led recovery are less favorable than in the past, policy is likely to shift further toward fostering growth in household demand, helping, in turn, to offset the profile of weaker government spending.”
China’s economy is forecast to expand 9 percent this year and next, according to the World Bank. Malaysia and Thailand will return to growth this year, while the economies of Indonesia and Vietnam are expected to accelerate, it said. East Asian economies expanded 6.8 percent last year, the World Bank estimated.
Inflationary Pressure
In South Asia, policy makers will be “particularly responsive” to signs of building inflationary pressures because of a strong aversion to food-price increases, the World Bank said.
“Expected progressive tightening of monetary conditions over the forecast horizon will contribute to an easing of inflationary pressures by 2011 across the region,” it said. “External demand for goods and services is anticipated to recover, while improving consumer and business confidence, combined with the lagged effects of expansionary monetary and fiscal policy measures and a positive turn in the inventory cycle, should contribute to strengthening domestic demand.”
India’s economy will probably grow 7.6 percent this calendar year and 8 percent in 2011, according to the report.
The World Bank said capital inflows to South Asian economies could also lead to an appreciation of their currencies and hinder exports.
“Failure to mop up excess liquidity in banking systems or to bring down the region’s large fiscal deficits could lead to higher inflationary pressures,” according to the report.
Another risk faced by South Asia is reduced remittances as growth in the Middle East “could surprise on the downside,” hurting migrant workers in the Gulf, the World Bank said. (Bloomberg)