IMF sees slower growth in emerging markets

MANILA, Philippines - The International Monetary Fund (IMF) expects a slower growth in emerging market economies, trimming the region’s forecasts with the expected credit constraints coming from the tapering of stimulus abroad.

According to its latest World Economic Update, IMF expects emerging economies to grow five percent this year and 5.4 percent next year. Forecasts were slower than the 5.3 percent and 5.7 percent seen last April.

Of these nations, the so-called Asean-5 – Indonesia, Malaysia, the Philippines, Singapore and Thailand – could expand 5.6 percent in 2013 and 5.7 percent in 2014. These are slower than April’s 5.9 percent for both years.

“Risks of a longer term slowdown in emerging market economies have now increased due to protracted effects of domestic capacity constraints, slowing credit growth and weak external conditions,” the IMF said in the report.

Weaker expansion in emerging economies, considered as growth drivers for the past years, could put global growth at a “subdued” level for this year and the next. The IMF put its projections at 3.1 percent and 3.8 percent.

Of primary concern is still the weak trade demand due to the euro zone debt crisis, the multilateral agency said. In the US, where stimulus measures are seen being withdrawn later this year, fiscal problems continued to weigh in on over-all expansion.

Nonetheless, the IMF warned that should investors continued to worry about the halt in the US bond-buying program, liquidity shifts from developing nations could impact on the latter’s economic expansion.

In June, Asian financial markets have been rattled by pronouncements from US Federal Reserve Chairman Ben Bernanke that its $85-billion monthly stimulus may be reduced “later this year” once the world’s largest economy shows concrete signs of recovery.

“The forecasts assume that the recent rise in financial market volatility and the associated yield increases will partly reverse, as they largely reflect a one-time repricing of risk…,” the IMF said.

“However, if underlying vulnerabilities lead to additional portfolio shifts, further yield increases and continued higher volatility, the result could be sustained capital flow reversals and lower growth in emerging economies,” it explained.

Central banks on these nations were thus advised to prepare macro-prudential measures which should address “possible increases in financial stability risks” rooted from capital flight.

Furthermore, additional growth support by easing interest rates, if necessary, could also come in handy, the IMF said.

 â€œHowever, real policy rates are already low already, and capital outflows and price effects from exchange rate depreciation may also constrain further easing,” the IMF said.

“The main instruments should be regulatory oversight and macro-prudential policies,” it added.