Indonesia,Turkey,Vietnam Prone to Overheating

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VIVAnews – One of the challenges that the developing countries, including Indonesia, is dealing with is economic ‘overheating’. This is concerned with excessive circulation of money due to high inflation.

The Economist’s webpage charted 27 countries that have the risk of overheating. This economic temperature is calculated based on six indicators, namely inflation rate, average unemployment rate per ten years, GDP growth trend, credit access (credit channeling growth minus nominal GDP), real rate of interest and the estimation of 2011 current account.

The higher are the indicator values, the higher risk of overheating. The indicators values are 2 for high, 1 medium and 0 low. For example, if the credit growth is more than 5 percent, the score is 2 points, 0.5 percent 1 point and below 0 percent 0 point. The scores would be summed and become the overall index. The score of 100 shows that all the six economic indicators are in red.

There are seven hot spots where a majority of the indicators are flashing red: Argentina, Brazil, Hong Kong, India, Indonesia, Turkey and Vietnam. In particular, the growth in credit is sizzling in all seven. Argentina is the only economy where all six indicators are on red, but Brazil and India are not far behind.

China, often the focus of overheating concerns, is well down the rankings in the middle of the amber zone, partly thanks to more aggressive monetary tightening. Russia, Mexico and South Africa are in the green zone, suggesting little risk of overheating.

Earlier, Harvard University Professor Jeffrey Frankel estimated the countries which are prone to overheating, namely Indonesia, India, China and Singapore. These four Asian countries have high economic growth. However, lurking behind it is the high inflation in all four countries.

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Translated by: Indah Lestari 

Source: vivanews

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naomi 02 Jul, 2011

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