Emerging markets stand strong

It used to be that when advanced economies sneezed, emerging markets caught a cold.

- KRISTALINA GEORGIEVA MOHAMMED AL-JADAAN

That is no longer true. Following recent global shocks, such as the post-pandemic inflation surge and a new wave of tariffs, emerging markets have held up well. Inflation has continued to slow, currencies have generally retained their value, and debt issuance costs have remained at manageable levels. There has been no sign of the kind of financial turbulence that came with past economic shocks.In fact, emerging markets have expanded their role as a key global growth engine, with their share of the world economy more than doubling since 2000. The 10 emerging markets in the G20 alone now account for over half of global growth.

While supportive external conditions have played a part in emerging markets' impressive resilience, so have the policies and institutions underpinning it. Central banks have grown more independent, with clearer inflation targets and less reliance on foreign-exchange interventions to absorb shocks. And more emerging markets are using fiscal rules to impose budgetary discipline.

In Brazil, for example, monetary reforms paid off in the country's fight against inflation. Guided by an inflation-targeting framework established in 1999, Brazil was one of the first countries to raise interest rates as prices surged during the pandemic. It has since refined its framework and is now expected to reach its 3% target next year.