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Emerging markets drive global recovery

Emerging markets survived recession better than advanced economies Emerging economies becoming more important global players Increased economic heft plus increased voice equal newfound responsibility

Major emerging markets have exited from the global financial crisis in the driver's seat.

They are gaining in strength and prominence and helping the world recover from the recession that plagued advanced economies along with everyone else, according to the latest edition of Finance & Development (F&D) magazine.

Analysis by Eswar Prasad of Cornell University and IMF's Ayhan Kose finds the economic ascendancy of emerging markets such as Brazil, China, India, and Russia will allow them to play a significant role in global economic governance and take on more responsibility for economic and financial stability.

Emerging markets as a group weathered the global recession better than advanced economies. Many have seen growth bounce back during the past year, and they seem poised for high growth in coming years.

There was variation among regions, however. Emerging Asia saw the most favourable outcomes, with modest declines in growth.

The emerging economies of the Middle East and North Africa (MENA) and those in sub-Saharan Africa also enjoyed only small declines in output, possibly due to their modest exposure to trade and financial flows from the advanced economies.

In contrast, emerging markets in Europe and Latin America suffered during the crisis because of their ties with advanced economies, though those in Latin America recovered relatively strongly.

The particular success of emerging economies in Asia, MENA and sub-Saharan Africa was thanks to a combination of factors, including macroeconomic policies that brought inflation under control and limited public debt; reduced dependence on foreign financing, current account surpluses that insured against reversals of capital inflows and diversification in production and exports.

Improved trade and financial linkages increased resilience, and rising incomes and a burgeoning middle class translated into growing domestic markets for emerging market economies, the authors say.

Different challenges

In coming years, emerging market economies will face challenges very different from those of the advanced economies. Rather than weak growth and deflation, emerging markets will need to guard against rising inflation, surging capital inflows and the associated risk of bubbles in asset and credit markets, and the threat of rapid currency appreciation.

Along with their increase in economic heft, emerging economies are playing a larger role in setting global priorities.

IMF External Relations Department

 

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