World Bank warns of Asian asset bubbles

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world-bank-entranceThe World Bank on April 15 scaled back slightly its 2013 growth forecasts for emerging East Asia and warned about possible over-heating in the region’s larger economies, among them Indonesia and the Philippines, However, it said that the Bank of Japan’s sweeping monetary expansion should provide a fillip to developing countries.

Overall, the World Bank expects developing East Asia to grow by 7.8 per cent this year, below its December estimate of 7.9 per cent but faster than last year’s 7.5 per cent.

Larger Southeast Asian economies such as Indonesia, Malaysia and the Philippines may be reaching the limits of their current productive capacity, the World Bank said in the report.

“Though the developing economies of East Asia are generally well-prepared to absorb external shocks, an emerging concern is the risk of overheating in some of the larger economies,” the bank said.

The bank said measures previously implemented to fuel economic growth of the concerned countries are now ripe for withdrawal. It explained that robust growth rates could eventually lead to inflationary problems if policies would remain the same.

The World Bank said foreign portfolio investments to emerging Asian countries are a concern given their likelihood to create bubbles in the asset market.

Central banks in Asia should “think about the timing and pace of withdrawing monetary support” as strong credit growth has seen a buildup of financial imbalances, International Monetary Fund managing director Christine Lagarde said.

And the Asian Development Bank also said in an April 9 report that the region’s growth recovery faces the risk of asset bubbles from rising capital inflows. Some countries in the region, which accounted for 40 per cent of global growth in 2012, need to manage renewed capital inflows through “an appropriate macroeconomic stance and sufficient flexibility in the exchange rate.”

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Reading Time: 2 minutes

The World Bank on April 15 scaled back slightly its 2013 growth forecasts for emerging East Asia and warned about possible over-heating in the region’s larger economies, among them Indonesia and the Philippines, However, it said that the Bank of Japan’s sweeping monetary expansion should provide a fillip to developing countries.

Reading Time: 2 minutes

world-bank-entranceThe World Bank on April 15 scaled back slightly its 2013 growth forecasts for emerging East Asia and warned about possible over-heating in the region’s larger economies, among them Indonesia and the Philippines, However, it said that the Bank of Japan’s sweeping monetary expansion should provide a fillip to developing countries.

Overall, the World Bank expects developing East Asia to grow by 7.8 per cent this year, below its December estimate of 7.9 per cent but faster than last year’s 7.5 per cent.

Larger Southeast Asian economies such as Indonesia, Malaysia and the Philippines may be reaching the limits of their current productive capacity, the World Bank said in the report.

“Though the developing economies of East Asia are generally well-prepared to absorb external shocks, an emerging concern is the risk of overheating in some of the larger economies,” the bank said.

The bank said measures previously implemented to fuel economic growth of the concerned countries are now ripe for withdrawal. It explained that robust growth rates could eventually lead to inflationary problems if policies would remain the same.

The World Bank said foreign portfolio investments to emerging Asian countries are a concern given their likelihood to create bubbles in the asset market.

Central banks in Asia should “think about the timing and pace of withdrawing monetary support” as strong credit growth has seen a buildup of financial imbalances, International Monetary Fund managing director Christine Lagarde said.

And the Asian Development Bank also said in an April 9 report that the region’s growth recovery faces the risk of asset bubbles from rising capital inflows. Some countries in the region, which accounted for 40 per cent of global growth in 2012, need to manage renewed capital inflows through “an appropriate macroeconomic stance and sufficient flexibility in the exchange rate.”

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