Sept. 11 (Bloomberg) -- Asia faces greater risks from asset bubbles caused by global stimulus than from threats to economic growth, said Gail Fosler, president of the Conference Board.
Governments need to be vigilant of the money flowing into their economies as investors buy assets such as real estate in emerging markets, Fosler of the New York-based research group said in a speech in Singapore today.
“There is a tremendous amount of fiscal stimulus that is going into producing the supply response that you see in the global economy today and the growth in assets continues to be stunning,” Fosler said. “This sets the stage for asset bubbles to move out of the U.S. and into Asia and emerging markets in general. It will be extremely important to be watchful in terms of asset accumulation and price accumulation.”
The global economy is emerging from the worst recession since the 1930s, as governments increase debt levels to finance spending. Officials from the Group of 20 nations this month expressed caution on the world economic outlook and judged it premature to start unwinding record-low interest rates and about $2 trillion in fiscal stimulus.
The global equity rally has added about $17 trillion to the value of stocks since this year’s low on March 9 as the credit crunch eased and investors became more confident of a recovery.
“There is almost no deleveraging that is actually taking place and the only thing that has slowed down is the rate of growth in leverage,” Fosler said.
China Drives Expansion
Global growth in the future will be at much lower levels than in the recent past, she said, adding that China is a bigger driver of Asian expansion than the U.S.
“The notion that U.S. consumption is driving Asian growth is really miscast,” Fosler said. “The U.S. consumer is an element, but I think much of the growth that I’ve seen in Asia has really occurred around the profit margins, around the technology sector. China is much more of a factor in Asian growth than is the U.S.”
The Federal Reserve this week said 11 of its 12 regional banks reported signs of a stable or improving economy in July and August, adding anecdotal evidence that the worst U.S. recession in seven decades is over.
The world’s largest economy contracted 1 percent from April through June, according to the Commerce Department. The drop was the fourth in a row, making it the longest contraction since quarterly records began in 1947.
The U.S. has a “fair chance” of becoming a net saver as households in the world’s largest economy are saving more, Fosler said.
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