Money International Monetary Fund said that the world economy is likely to see a two speed recovery in 2011 with emerging markets witnessing stronger growth than advanced economies.
Some emerging nations like India and China, however, are also facing the challenges of huge capital inflows and overheating. The global economy, which grew nearly five per cent this year, is being driven by good expansion in emerging countries while many advanced nations continue to grapple with sluggish economic activities.
Mr Olivier Blanchard chief economist of IMF said that "The two speed global economic recovery is likely to dominate 2011."
According to him, weak growth in advanced economies is barely enough to bring down unemployment and emerging markets face the challenges of success, including how to avoid overheating and handle strong capital inflows.
For instance, India has alone seen Foreign Institutional Investors investing more than USD 40 billion in 2010.
In an interview to the multilateral lender's online magazine IMF Survey, Mr Blanchard stressed that countries should focus on re-balancing activities, including structural measures and exchange rate adjustments. He added that "Without this economic re balancing, there will be no healthy recovery. Regarding high capital inflows into emerging markets, he noted that if well utilized, these funds can "help rather than hurt. By leading to an appreciation, they help shift countries away from external demand toward domestic demand. And, by making it easier and cheaper to borrow, they can boost domestic demand."
A number of European nations such as Greece and Ireland are fighting acute financial problems, which also forced these countries to seek bailout from entities, including the IMF.
He said that some European countries face a tough and long macroeconomic adjustment. He added that "For those countries in the euro and thus operating under a fixed exchange rate, this is going to be a long and tough slog."