EM growth to remain strong – IMF

Published by rudy Date posted on January 22, 2014

MANILA, Philippines – Growth in emerging markets (EMs) and developing economies including the Philippines is expected to remain strong this year but the International Monetary Fund warned they may see further capital outflows amid continued volatility.

In its World Economic Outlook (WEO) update published yesterday, the IMF retained its 5.1-percent growth forecast for EMs and developing economies this year from its projection in October last year.

Economic expansion is expected to pick up at 5.4 percent next year, slightly higher by 0.1 percent than the October forecast.

“Many other emerging market and developing economies have started to benefit from stronger external demand in advanced economies and China,” the IMF said.

“In many, however, domestic demand has remained weaker than expected. This reflects to varying degrees, tighter financial conditions and policy stances since mid-2013, as well as policy or political uncertainty and bottlenecks, with the latter weighing on investment in particular,” it added. “As a result, growth in 2013 or 2014 has been revised downward compared to the October 2013 WEO forecasts.”

The latest IMF report did not provide specific economic growth projections for the Philippines but said economic expansion in the Association of Southeast Asian Nations-5 is seen at 5.1 percent this year. This forecast is 0.3 percent below the IMF’s October projection.

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For 2015, growth in the ASEAN-5 – Indonesia, Malaysia, Philippines, Thailand, and Vietnam – is seen to accelerate to 5.6 percent.

The IMF pointed out emerging markets and developing economies should be able to manage risks of potential capital flight following recent events such as the US Fed’s announcement to reduce its monthly asset purchases to $75 billion.

“Economies with domestic weaknesses and partly related external current account deficits appear particularly exposed. Exchange rates should be allowed to depreciate in response to deteriorating external funding conditions,” the IMF said.

The Fund noted that should there be constraints on exchange rate adjustments, policymakers should consider “combination of tightening macroeconomic policies and stronger regulatory and supervisory policy efforts.”

The IMF also hiked its global growth forecast for 2014 as activity strengthened in the second half of last year and largely because of the recovery of advanced economies.

Global growth is now forecast at 3.7 percent this year, 0.1 percent above the Fund’s October projection. This is seen to further rise to 3.9 percent in 2015, the same level previously expected.

The WEO is published by the IMF every April and October of the year, while an update to the report is released every January and July. -Kathleen A. Martin (The Philippine Star)

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