Although the International Monetary Fund (IMF) retains its positive outlook regarding Asia's economic growth for the foreseeable future, the institution warns that the enormous influx of foreign capital in recent years can result in a new bubble due to excessive growth in lending and property prices. Despite these concerns, the IMF expects Asia to grow 5.75 percent in 2013 and calls Asia the leader of global economic recovery, followed by the US and, lastly, Europe.
In recent years, hundreds billions of US dollars have flown into Asia. Due to loose monetary policy, the prices of property have risen explosively in a number of Asian countries. In Hong Kong property prices doubled in the last four years and are currently back on the level of the early 1990s. A number of Asian stock indices have repeatedly reached record high levels. If the hundreds of billions that the Japanese are pumping into their economy will reap success, risks of Asia's overheating will increase. Politicians and central bankers should act immediately when the first signs of overheating are visible.
If Japan will succeed in overcoming deflation and its yen continues to depreciate, institutional investors in Japan will start to aim for other markets in Asia, such as Indonesia. Risks include that - despite the injection of hundreds of billion of dollars - Japan's government turns out unsuccessful in spurring economic growth, or a sudden halt to China's economic growth.
According to the IMF, China is projected to lead Asia's economic growth this year with an expected growth figure of eight percent. A number of other Asian countries follow with growth figures of around six percent. These countries include, Indonesia, the Philippines, Myanmar and Vietnam.