IMF warns of inflation in red-hot Asia

Photo: AFP

The International Monetary Fund on Monday warned a number of Asian economies were showing signs of overheating and that soaring food and energy prices were threatening to stoke higher inflation.
But in its latest World Economic Outlook, the Fund also lowered its 2011 growth forecast for Japan after last month's enormous earthquake and tsunami, warning of "large uncertainties" over the world's number-three economy.
And the IMF lent its weight to global calls for China -- which last year overtook Japan in economic size -- to allow the yuan to strengthen. The currency was "substantially weaker" than it should be, the report said.
"Signs of overheating are starting to materialize in a number of economies in the Asian region. Continued high growth has meant that some economies in the Asian region are now operating at or above potential," it cautioned.
Powered by China, Asian economies have led the recovery from the world economic crisis but the IMF warned that stellar rates of growth were feeding price pressures.
"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," it said.
Households in developing economies spend a comparatively larger share of their incomes on food and energy.
The IMF warned that "many emerging market economies will need to tighten policies to lower the risk of a hard landing".
Several countries -- including South Korea, Indonesia and India -- have tightened policy to try to head off huge inflows of foreign capital from investors seeking better returns on their money than in the lagging West.
The IMF said Japan's economy, which was already struggling with a massive debt mountain and plodding growth, would be further hurt by the earthquake and tsunami that struck the northeast on March 11.
It forecast Japan's gross domestic product would grow 1.4 percent in 2011 compared to an earlier forecast of 1.6 percent made before the twin tragedy hit industrial production and supply chains.
Japan grew 3.9 percent in 2010 after contracting 6.3 percent in 2009 as a result of the global financial crisis.
The IMF warned that the full economic impact of Japan's worst post-war disaster had yet to emerge, adding: "There are large uncertainties associated with the 'Tohuku' earthquake."
Tokyo has said the cost of rebuilding could reach as much as 25 trillion yen ($295 billion).