ADB flags danger of Asia forming ‘asset bubbles’

AFP-JIJI

Emerging Asia needs to be on guard against “asset bubbles” as central banks around the globe loosen monetary policy, Asia Development Bank Managing Director Rajat Nag warned.

“The positive thing of quantitative easing out of Japan and other economies is that they will start to grow, but we have to be wary of building asset bubbles” and economic overheating, Nag said Friday in New Delhi.

Last month, the Bank of Japan announced it would pump the equivalent of $1.4 trillion into the economy over the next two years, administering unprecedented financial shock treatment to end two decades of stagnation through bold monetary expansion.

The U.S. Federal Reserve and the Bank of England have also embarked on more limited forms of quantitative easing — increasing money supply to revive their economies.

Nag noted that inflationary pressures are already “on the uptick” in many countries across Asia, as economies reach full manufacturing capacity.

“The robust growth we have seen in Asia so far has eliminated slack productive capacity, so price pressures will begin to mount,” he told reporters ahead of the ADB’s annual meeting of the board of governors this weekend in the Indian capital.

Emerging Asian economies such as India, China, Indonesia, and Thailand are on track to post growth of around 6.6 percent this year, driven by domestic and regional demand and receding reliance on developed nations.

The concern now, Nag said, is not so much the rate of growth but “its quality,” amid deepening worries over economic inclusiveness, governance issues and environmental sustainability.

He did not comment directly on the string of graft scandals that have beset host nation India and are blamed for eroding investor confidence and causing a sharp slowdown in its economy.

But without good governance, nations could land in a “middle income trap” and the Asian growth story may not “unfold in the way it should,” he cautioned. The term refers to economies that fail to achieve their full growth potential.

On risks posed by climate change, Nag said: “We in Asia definitely ‘get it.’ Of the top 20 cities that would be submerged by climate change, 15 would be in Asia.

“Unfortunately, we are not proceeding very well,” he noted, urging developing nations and advanced economies to tackle global warming together.

Asked about the global economy, he said that “we’re not out of the woods yet,” but added that sentiment is more bullish with the U.S. economy picking up, Japan expected to show some growth and the eurozone’s fortunes forecast to improve next year.

Nag said the ADB welcomes the development bank planned by the BRICS group of major emerging economies — Brazil, Russia, India, China and South Africa — as help in meeting huge infrastructure funding needs.

The planned bank, seen by some as a challenge to the postwar global financial institutions, is part of the “re-balancing” of a global economy “that is becoming multipolar,” he said.

  • zer0_0zor0

    Aso’s posting as finance minister is hard to take serious, but it’s good to see the Asian block governments coordinating on policy, like the EU.

    Hopefully that will serve to delink the finance systems from Wall St in order to prevent adverse impact from the funny money Empire Finance sector of the US and UK, and add a measure of stability owing to the suppression of so-called irrational exuberance tied to asset bubbles anywhere in the globalized funny money markets.