IMF sees robust growth for emerging Asian economies

MANILA, Philippines - Emerging Asian economies are expected to post robust growth this year but are advised to boost technology and human capital to avoid falling into the “middle income trap,” the International Monetary Fund (IMF) said.

In its Asia-Pacific economic outlook released yesterday, the IMF projects emerging Asia – including the Philippines – to grow 7.2 percent this year, before slightly accelerating to 7.4 percent by 2014.

An emerging economy falls into a “middle income trap” if it suffers from “sustained growth slowdown” after years of fast growth.

Emerging Asia also includes China, India, Indonesia, Malaysia, Thailand and Vietnam.

The local economy, in particular, is seen to grow six percent this year and 5.5 percent next year as earlier projected by the IMF in its World Economic Outlook.

“A small, gradual pick-up in growth is expected to continue throughout 2013, underpinned by continued robust domestic demand and some modest strengthening in external demand,” the IMF said.

Economic expansion would be on the back of a strong labor force, record-low interest rates and contained inflation, it said. Capital inflows, triggered by investors fleeing developed markets, would also significantly contribute to the growth.

Inflows, the IMF said, could be channeled into equity and bond placements to boost private consumption, while foreign direct investments could buoy investments, especially in infrastructure.

The IMF also cited “more balanced” risks to the region’s bright prospects.

“The impact of external risks on Asia remains substantial. In the event of a severe global slowdown, capital inflow reversals and falling external demand would exert a powerful drag,” it said.

The report also said emerging economies are in danger if they fail to develop total productivity factor, which includes advances in technology and in human capital.

“In a nutshell, sound economic institutions as well as favorable demographics and trade structure can all reduce the likelihood of a growth slowdown,” the IMF said.

“By contrast, strong capital inflows as well as investment booms, while good for growth, also entail risks of bust further down the road, because boom-bust cycles can have long lasting adverse effects on living standards,” it added.