AI could add up to 1 percentage point to Asia’s growth annually, offset ageing drag: IMF

New Delhi: Artificial intelligence (AI) and related technologies could boost Asia’s annual economic growth by 0.2 to 1 percentage point, helping offset the impact of a shrinking population and allowing the region to maintain or even exceed its recent growth rates, according to an article by IMF Asia and Pacific Department Director Krishna Srinivasan.

The article said Asia’s declining population could reduce economic growth by around 0.3 percentage point every year by 2050. This makes higher productivity increasingly important as traditional drivers of growth come under pressure.

“Together, these forces suggest that growth in Asia could remain close to or even exceed recent historical averages if productivity gains are fully realized,” Srinivasan wrote.

Asia is entering a critical period as ageing populations, slower productivity growth and growing trade fragmentation pose challenges to the growth model that has driven the region’s economic rise.

Asia currently accounts for nearly 40 per cent of global output and around two-thirds of global growth, compared with about a quarter of global output in the 1990s. However, productivity growth has slowed across much of the region since the global financial crisis, while returns on investment have also declined.

The article said AI could help address some of these challenges by raising productivity and increasing automation, particularly in countries facing a shrinking workforce.

Countries with more skilled workers, higher levels of capital and stronger institutions are likely to benefit more from the early adoption of AI, it said.

However, the gains from AI may not be evenly distributed. Delayed adoption in lower-income economies could increase regional economic differences. Within countries, AI could also widen wage and employment gaps between workers who benefit from the technology and those whose jobs are replaced.

The IMF also identified greater regional trade integration as another potential source of growth. More comprehensive regional trade agreements could increase regional real GDP by about 1.8 per cent in the long run, with further gains possible if countries coordinate their reforms.

The article said services, especially finance, information technology and business process outsourcing, are likely to become increasingly important for Asia’s future growth. In India, modern services account for about a quarter of exports, it noted.

Energy security is another major challenge, particularly for Southeast Asia. Rising energy demand and continued dependence on imported fossil fuels have increased the region’s vulnerability to energy shocks.

At the same time, countries across Asia are increasing their use of renewable energy. Vietnam is expanding renewable energy to support its manufacturing sector, while Indonesia, the Philippines and Thailand are also taking steps to reduce their energy vulnerabilities.

Falling renewable energy costs and improvements in energy storage are supporting the region’s transition, the article said.

“From Korea then to Vietnam now, Asia has driven the world’s growth. If it falters, the global economy will feel the costs. And if it thrives, the world will benefit,” Srinivasan wrote.

He said sustaining Asia’s growth will require better skills, stronger institutions and effective policies to ensure that technology improves productivity while supporting inclusion and sustainability.