## Emerging Markets Show Resilience Despite Global Monetary Tightening

_IMF Blog, July 12, 2024_

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**Canonical URL:** [Emerging Markets Show Resilience Despite Global Monetary Tightening](https://www.imf.org/en/blogs/articles/2024/07/12/emerging-markets-show-resilience-despite-global-monetary-tightening)

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## Bibliographic details
- Authors: Cian Allen, Rudolfs Bems
- Published: July 12, 2024

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### Main findings on resilience and risks
- Interest rates in the United States are at 20-year highs and the dollar has appreciated sharply against other world currencies.
- Despite historical precedents where rapid US monetary tightening and a strong dollar have led to sudden capital flight and financial crises in emerging markets, the latest evidence shows no emerging market crisis.
- Emerging markets—excluding China—saw net capital inflows recover to $110 billion, or 0.6 percent of GDP, last year; this is the highest level since 2018.
- Net portfolio inflows into emerging markets declined (consistent with global monetary tightening), while net inflows of foreign direct investment have been more stable.
- China is an exception: it experienced net capital outflows, including negative net FDI inflows over 2022-23. Possible drivers include multinational firms repatriating earnings and shifting expectations about Chinese growth and geoeconomic fragmentation.

### Global gross flow dynamics and fragmentation
- Patterns in net inflows mask a retrenchment of global gross capital flows: declines in both gross inflows (foreigners buying fewer assets) and gross outflows (residents buying fewer assets abroad).
- In 2022-23, global gross inflows declined from 5.8 to 4.4 percent of world GDP, or from $4.5 trillion to $4.2 trillion, relative to 2017-19; global gross outflows declined in line with inflows.
- The decline in gross flows masks large cross-country differences:
  - The United States accounted for 41 percent of global gross inflows—almost double its 23 percent share in 2017-19.
  - Gross outflows from the United States increased from 14 to 21 percent of global gross outflows.
  - Global gross flows into and from China dropped considerably over that period.
  - Financial centers experienced an even more drastic decline in gross flows; this may reflect increased financial fragmentation and/or an unwinding of some tax or regulatory strategies by large multinational corporations in financial centers.

### Policy implications and recommended actions
- The resilience of many emerging markets partly reflects stronger fundamentals: more robust fiscal, monetary, and financial policy frameworks, and more effective implementation of policies and tools.
- Amid shrinking global flows, emerging markets should:
  - Double down on recent improvements to macroeconomic frameworks.
  - Strengthen policy implementation and institutions that helped them withstand higher-for-longer US interest rates.
- Countries have a variety of tools to cope with stresses from capital flow volatility.
- The IMF’s Integrated Policy Framework can help calibrate the best possible policy mix to navigate this strong-dollar period.

*Emerging Markets Show Resilience Despite Global Monetary Tightening — Cian Allen, Rudolfs Bems; July 12, 2024 (IMF blog).*

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## References

- [External Sector Report](https://www.imf.org/en/Publications/ESR/Issues/2024/07/12/external-sector-report-2024?cid=bl-com-ESREA2024001)
- [Integrated Policy Framework](https://www.imf.org/en/Topics/IPF-Integrated-Policy-Framework)

_Source: https://www.imf.org/en/blogs/articles/2024/07/12/emerging-markets-show-resilience-despite-global-monetary-tightening_