overheating in emerging markets: an asian perspective carnegie endowment for international peace...
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Overheating in Emerging Overheating in Emerging Markets:Markets:
An Asian PerspectiveAn Asian Perspective
Carnegie Endowment For Carnegie Endowment For International PeaceInternational Peace
February 16, 2010February 16, 2010
Anoop SinghAnoop SinghDirector, Asia and Pacific Department, Director, Asia and Pacific Department,
IMFIMF
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Plan of the presentationPlan of the presentation
Overheating in Asia: A Look at Overheating in Asia: A Look at the Evidencethe Evidence
Policy Challenges Policy Challenges
ConclusionsConclusions
Asia continues to lead an uneven global Asia continues to lead an uneven global recovery and output gaps are closing fast recovery and output gaps are closing fast
across the regionacross the regionWorld GDP Growth
(Year-on-year; in percent)
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Overheating in Asia
Asia: Estimated Output Gap Closing Dates
Yet, macroeconomic policies are still very Yet, macroeconomic policies are still very accommodativeaccommodative
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Asia: Real Policy Rates
(In percent)
Asia: Cyclically Adjusted General Government Balance
(In percent of GDP)
Overheating in Asia
Inflationary pressures are emerging in Asia, Inflationary pressures are emerging in Asia,
fuelled by higher food prices…fuelled by higher food prices…
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Overheating in Asia
Asia: Headline CPI1
(Year-on-year percent change)
1 Wholesale prices used for India.
Asia: Headline and Food Price Inflation(Year-on-year; in percent)
……but there are also growing signs of but there are also growing signs of spillovers to generalized inflationspillovers to generalized inflation
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Overheating in Asia
Asia: Core CPI1
(3-month percent change of 3-mma)Selected Asia: Real wage/earnings(2008:Q1=100; seasonally adjusted)
Credit growth is generally brisk, and Credit growth is generally brisk, and property prices are still growing fast in a property prices are still growing fast in a
few regional economiesfew regional economies
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Overheating in Asia
Selected Asia: Property Prices(Year-on-year percent change)
Asia: Credit to Private Sector(Year-on-year percent change)
Upward pressures on equities have abated Upward pressures on equities have abated and valuations are generally in line with and valuations are generally in line with
historical normshistorical norms
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Overheating in Asia
Asia: Stock Markets(October 1, 2010 = 100)
Asia: 12-month Forward P/E Ratios(Relative to long-run average)
But capital flows to EM Asia will need to be But capital flows to EM Asia will need to be managed carefullymanaged carefully
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Policy Challenges
Emerging Markets: Net Capital Flows
(In billions of U.S. dollars)
Selected EM Asia: Net Portfolio Flows
(In percent of GDP; 4qma)
Stronger currencies will be needed across the region
Foreign Exchange Reserves(In billions of US dollars)
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Policy Challenges
REER Change(In percent; between September 2007 and December 2010; GDP weighted )
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Macro-prudential measures can be useful if Macro-prudential measures can be useful if tailored to country-circumstancestailored to country-circumstances
Policy Challenges
Measures ExampleTighter ceilings on L-T-V ratios China, Hong Kong SAR,
Singapore, Peru, Turkey
Higher stamp duties on resale of properties
China, Hong Kong SAR, Singapore
Reserve requirements on non-resident deposits, and on FX deposits
Indonesia, Peru
Limits on ratio of banks FX loans and securities to FX borrowing
Korea
Tax on equity and bond inflows Brazil
Withholding tax on foreigners’ bond purchases
Korea
Withholding tax on state bonds Thailand
Minimum holding period on investment in CB bills
Indonesia
Asia and Other EMs: Recent Macro-Prudential Measures
Overheating pressures are also emerging in Latin America, but with important
differences with Asia
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Comparing Asia with Latin America
Current Account Balance(In percent of GDP)
Domestic Demand and GDP growth
(In percent)
Note: Latin America includes: Brazil, Chile, Colombia, Mexico, and Peru.
A longer-term view: prevent the return of A longer-term view: prevent the return of global imbalances and make growth more global imbalances and make growth more
inclusiveinclusive
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Longer term challenges
Global Imbalances(Percent of World GDP)
Vulnerable Employment (In percent of total employment,
2008)
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ConclusionsConclusions Asia is still firmly leading the global recovery, Asia is still firmly leading the global recovery,
but overheating pressures have surfaced in a but overheating pressures have surfaced in a few regional economiesfew regional economies
Dealing with these pressures requires a quick Dealing with these pressures requires a quick normalization of both fiscal and monetary normalization of both fiscal and monetary stancesstances
Stronger currencies should be part of this Stronger currencies should be part of this policy mixpolicy mix
In addition to dealing with overheating risks, In addition to dealing with overheating risks, policymakers need to make sure that growth policymakers need to make sure that growth will be balanced and inclusive will be balanced and inclusive