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Chindia to drive global recovery

business Updated: Feb 25, 2011 00:07 IST
HT Correspondent
HT Correspondent
Hindustan Times
International Monetary Fund

India and China are leading global economic recovery according to a report by the International Monetary Fund (IMF).

Indonesia and Turkey are the two other economies that will join India and China in leading the world's economic recovery buffeted by a bumpy and uneven turnaround, the Fund said in the report titled Global Economic Prospects and Policy Challenges.

"The recovery in many advanced economies continues to be slow and sluggish, amid persistently high unemployment, significant excess capacity, and subdued private demand," the report said.

However, the growth in G20 emerging economies is expected to remain buoyant, the report said. Domestic demand will remain strong in these emerging economies, underpinning growth as demand from G20 advanced economies continues to remain subdued. "However, activity in these economies, particularly in export-oriented Asia, will remain linked to demand in advanced economies," the IMF said.

Besides, emerging economies would have to battle inflationary pressures with rapidly-rising food and commodity prices.

Headline inflation is already above target in some Latin American countries and is rising fast in eastern European and Asian countries including India. Most central banks have taken note of this problem.

With low interest rates in advanced countries, emerging markets would also have to keep a watch on capital inflows.

"If countries do not use existing policy levers, large capital flows may contribute to risks of overheating, a deterioration of current account deficits beyond what is already assumed in the baseline in some countries," the report said.

The asset price bubbles could undermine economic prospects in countries including India, Brazil, South Africa and Turkey.

According to the IMF, continuation of an accommodative monetary policy is an appropriate step from a domestic perspective, "considering also that the recovery is expected to remain sluggish going forward".