The technological boom that has kept Asia-Pacific resilient amid external shocks has also exposed the vulnerabilities in the region's labor sector, the International Monetary Fund said on Thursday.

The IMF's "Regional Economic Outlook: Asia and Pacific" report, launched at the annual meetings of the IMF and the World Bank in Bangkok, forecasts regional growth at 4.8 percent, supported by strong global demand for semiconductors and AI infrastructure.

However, the annual report also noted that over the long term, AI could amplify underemployment and skills mismatches.

"AI is reshaping occupations and the demand for skills for those roles," the report said, highlighting the need for policymakers across the region to promote the creation of high-quality jobs, support workers in acquiring relevant skills and facilitate labor mobility.

Krishna Srinivasan, director of the IMF's Asia and Pacific department, said addressing youth unemployment and skills mismatches while supporting AI adoption is among the structural reforms the region needs to implement.

There has been "a negative effect" on hiring in jobs more exposed to AI, with employer demand down 10 percent, he said.

"But we also find that this has stabilized — even as AI capability has increased — suggesting that AI is reshaping work more than eliminating it, as employers are demanding workers who have AI skills," Srinivasan said at a news briefing held during the launch of the regional economic outlook.

While the Asia-Pacific has benefited from AI exports and investments, "there is heterogeneity in terms of impact (on individual countries)", Srinivasan said.

He cited the IMF's AI Preparedness Index, which assesses the level of AI preparedness of each country by looking at its digital infrastructure, human capital and labor market policies, innovation and economic integration, and regulation and ethics.

For members of the Association of Southeast Asian Nations, Srinivasan said it is important to focus on harnessing human capital — through upskilling the labor force and ensuring the education system supports lifelong learning.

ASEAN is one of the key beneficiaries of the AI boom as countries such as Malaysia and Singapore are deeply embedded in the global AI supply chain.

Srinivasan said the IMF encourages policymakers across the region not just to adopt AI, but also to promote AI diffusion, which would spread the benefits across industries and across sectors of the population.

Sonali Jain-Chandra, deputy director of the IMF's Asia and Pacific department, highlighted how a correction in the global AI market could hurt the economic outlook of South Korea — a key exporter of semiconductors and another major beneficiary of the AI boom.

"There's a growing concentration of economic and financial market activity in (South Korea's) technology sector, and this could heighten vulnerability if there is a correction in global AI demand," she said.

A reversal of the AI boom would dampen export revenues and investments and tighten financial conditions, she said.

"But if AI diffuses across (different) sectors, if productivity gains are reaped, then there are upsides to the economy," she said.

Releasing the regional outlook, the IMF also projected that India will become the world's fourth-largest economy by next year, overtaking Japan.

Japan would remain the fourth-largest country by nominal GDP this year, but in 2027 India is set to take its place, with a GDP reaching $4.52 trillion. Japan is slated to slip to sixth place that year, falling behind both India and the United Kingdom, the projection showed. - China Daily/ANN