Emerging economies should use current resilience to support future growth, IMF says

By Rodrigo Campos

Jan 29 (Reuters) - Emerging market economies have proven resilient despite trade disruptions and geopolitical uncertainty, but that support may not last and should be used to rebuild buffers and broaden growth, the International Monetary Fund warned on Thursday.

The global economy has “shaken off the immediate impact of the tariff shock,” helped by companies reorganising supply chains, supportive financial conditions and a technology and artificial intelligence investment boom that has generated export spillovers, particularly in Asia, IMF chief economist Pierre-Olivier Gourinchas said.

Those forces have also bolstered emerging markets, sustaining activity and capital flows even as uncertainty remains elevated, he said.
But the IMF warned that growth has become increasingly narrow, with activity concentrated in a handful of sectors, especially technology and AI, raising risks.
“While the current investment boom offers the promise of a long-lasting productivity boost, the question remains whether returns will continue to meet or exceed expectations,” Gourinchas said at a roundtable ahead of the AlUla Conference on Emerging Market Economies, scheduled for Feb. 8–9 in Saudi Arabia.

A correction could hit emerging markets through tighter financial conditions and capital outflows, IMF officials said.

The Fund also flagged labour-market risks, noting early signs of softening in several countries and warning that wider adoption of AI could displace workers over time, posing added challenges for policymakers.

Gourinchas said the dollar’s depreciation over the past year had eased financial conditions in many emerging markets, but cautioned that the impact was uneven, particularly for commodity exporters.

Fiscal policy has become more countercyclical in many countries, helping cushion downturns, even as borrowing costs remain high for economies with elevated debt, officials said.

The IMF has previously pointed to stronger monetary credibility, more flexible exchange rates and improved fiscal frameworks as key sources of resilience. While those gains remain important, officials said easier external financial conditions and technology-led investment have played a larger near-term role in supporting growth.

The Fund’s latest global economic update reinforces the warning that resilience is narrow, and urged governments to use the current window to prepare for less favourable conditions.

“The period of resilience should be used to further strengthen fiscal buffers, improve debt management and safeguard price stability,” Gourinchas said, alongside structural reforms to lift productivity and broaden sources of growth.