Inflation, oil prices create new challenges: IMF

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  • Posted on April 12, 2011

    By Lesley Wroughton

    WASHINGTON (Reuters) – Soaring oil prices and inflation in emerging economies pose new risks to global recovery but are not yet strong enough to derail it, the International Monetary Fund said on Monday.

    The global lender’s latest health-check of world economic prospects marked a departure from recent years when its focus was on the financial crisis and recession in rich nations.

    The fastest growth in recent years has come from emerging markets like China, Brazil and India, which helped offset the deep downturns in the United States and other rich nations touched off by burst housing bubbles.

    Now, the IMF warns those very economies risk asset bubbles akin to the ones that sparked the 2007-2009 financial crisis.

    “The challenge for many emerging and some developing economies is to ensure that present boom-like conditions do not develop into overheating over the coming year,” the IMF said in its World Economic Outlook report.

    IMF chief economist Olivier Blanchard said there was no overwhelming threat to the world economy, but there were trouble spots that need to be dealt with.

    “There is not any major downside risk at this point,” he told reporters. But he cited a still-ailing financial sector in Europe and a high U.S. debt load as areas demanding attention.

    Still, even the prospect of oil above $120 a barrel was seen as not enough to imperil the steady global expansion.

    “Commodity prices have increased more than expected … (but) we don’t think that this time these increases will derail the recovery,” Blanchard said.

    The IMF’s central scenario remains one of slow-paced recovery. It kept its forecasts for global growth for both 2011 and 2012 at 4.4 percent and 4.5 percent, respectively.

    However, it said emerging markets have become a particular worry spot. The Fund warned they faced the risk of inflation as they struggle to deal with hard-to-control capital inflows.

    “We are warning emerging market countries that they are getting to the point where things may be too good,” Blanchard said.


    The IMF highlighted the searing impact of rising food and commodity prices on poorer countries and warned that inflation will remain elevated for a while.

    Soaring costs for basic staples stoked the social and economic tensions that have roiled the Arab world. Street protests have toppled dictatorships in Egypt and Tunisia, and left leaders in Yemen and Libya fighting to cling to power.


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