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IMF sees overheating in emerging nations

Amid strengthening recovery in the major G-20 countries, including India, there are worrying signs of overheating in many economies and rising inflationary pressures, the International Monetary Fund (IMF) said in a note prepared for last week's meeting of G-20 finance ministers and central bank governors. HT reports

india Updated: Apr 19, 2011 21:18 IST
HT Correspondent

Amid strengthening recovery in the major G-20 countries, including India, there are worrying signs of overheating in many economies and rising inflationary pressures, the International Monetary Fund (IMF) said in a note prepared for last week's meeting of G-20 finance ministers and central bank governors

Trade and bio-fuel policies have contributed to the recent food price volatility, the IMF said.

"In G-20 emerging economies, growth is expected to remain robust, in part reflecting limited damage from the crisis. However, inflationary pressures are building, and there are signs of overheating and nascent credit booms in a number of economies," the IMF said.

All countries face a new challenge of higher commodity prices, which have increased due to strong demand and supply uncertainties. This is leading to higher headline inflation.

Slow growth and inadequate policy responses in advanced economies will keep fiscal positions and financial systems vulnerable to shocks, especially in peripheral Europe, but also elsewhere.

Key policy challenges are to strengthen growth in advanced economies, moderate growth in emerging economies, and reduce risks, the IMF said.

In advanced economies, financial sector repair and reform, notably in the euro area, should proceed expeditiously, it said.

In emerging economies, the challenge is to avoid overheating in the face of closing output gaps and higher capital flows.

For the recovery to be sustained, advanced countries must achieve fiscal consolidation,for that they need to rely more on external demand. Symmetrically, emerging economies must rely less on external demand and more on domestic demand, it said.

Appreciation of emerging economies' currencies relative to advanced economies' currencies is an important part of this adjustment, the IMF said.