Issues in emerging market economies

The expansion in emerging market economies consolidated further in the period under review. In many countries, strong growth was accompanied by increasing export values and large current account surpluses. External debt burdens fell, foreign currency reserves rose further, fiscal positions improved, and balance sheets strengthened. Partly in response, consumer and investor confidence remained buoyant and growth was remarkably resilient in the face of higher oil prices even in oil-importing countries.

External conditions were unusually favourable during the period, including strong global demand, large terms-of-trade improvements for many countries and much easier external financing. In spite of these favourable circumstances, further policy measures are required. Some countries need to secure lasting improvements in fiscal positions. Also, while there was some degree of monetary tightening or exchange rate appreciation, particularly in countries that target inflation, monetary conditions in emerging market economies remained comparatively easy, and inflationary pressures became apparent in a number of cases. A major challenge for the monetary authorities in many countries is how to avoid policy mistakes that might put macroeconomic and financial stability at risk.