Desperately seeking Goldilocks in emerging markets
Growth is good for emerging economies but overheating is an ever-present danger. Governments are still failing to devise suitable cooling measures.
In the 1990s a new metaphor was devised to describe the global economy: the Goldilocks economy, meaning one that, like Goldilocks’s porridge, was neither too hot nor too cold, with growth chugging along and inflation kept in check.
For policymakers it was the perfect outcome in which they had little to do except to keep an eye on the latest numbers. Some heralded the Goldilocks economy as a new paradigm. Like most new paradigms it proved to be a busted flush but policymakers in emerging markets must now wish that they were overseeing Goldilocks-type economies.
Growth rates of 7%, 8%, 9% sound good in theory but can be a nightmare for central bankers worried about overheating economies, asset bubbles and runaway inflation.
China’s GDP rise of 10.3% last year seems more like an economy burning out of control than one on a sustainable path to enrichment. In India, too, excitement about the country’s strong growth is giving way to concerns about its inflation outlook. Global investors have become net sellers of Indian equities for the first time since May, primarily because of worries about the pace of price rises. India’s wholesale price index rose 8.4%