Emerging market economies overcome better than expected the US rate hike cycle
The Bank for International Settlements (BIS) released a paper analyzing the performance of emerging markets economies (EMEs) in the context of the monetary policy tightening experienced in advanced economies. The main conclusion is that based on historical antecedents, the exceptionally sharp tightening of monetary policy in the post-pandemic inflationary surge could have been expected to lead to significant stress and dislocation on EMEs, however this group of countries have shown economic resilience due to structural changes, including improvements in monetary and fiscal policy and in prudential regulation and supervision.
Main highlights:
- The frequency of financial crises in EMEs has declined over time as well as relative to that in their advanced economy peers. A set of structural factors can explain the big difference between the episodes of monetary tightening in advanced economies and their disruptive impact on EMEs in the 1980s and 1990s and the more favorable experience that has occurred since 2000.
- Structural improvements contributing to EME resilience:
- Better monetary policy frameworks: Monetary policy has become more transparent, enhancing credibility among market participants. As a result, inflation expectations have become more stable and the pass-through of the exchange rate to inflation has declined.
- Stronger prudential regulation and supervision: Prudential measures have been widely deployed over the past two decades resulting in higher bank capital ratios, helping to strengthen the banking system’s resilience.
- Improved fiscal policy frameworks; although progress on this front has been uneven and the much higher debt levels and wider deficits remain a possible Achilles heel going forward.
- Better monetary policy frameworks: Monetary policy has become more transparent, enhancing credibility among market participants. As a result, inflation expectations have become more stable and the pass-through of the exchange rate to inflation has declined.
Filter results
According to AFME, a clearer, more coherent, and proportionate regulatory environment, without unnecessary layers and focuses on growth and competitiveness, is keyl to increase investor confidence, unlock private capital and deepen European capital markets
According to the Center for the Governance of Change at IE University, Europeans support technological progress if it reinforces security, inclusion, and social welfare; but resist it when change feels imposed, opaque, or misaligned with their values.
According to a recent report released by CEPS, European financial regulators should adopt competitiveness as a formal secondary objective, following the precedent established by the UK's Financial Services and Markets Act 2023.
According to the OECD. SMEs and start-ups that grow rapidly contribute significantly to job creation, economic growth and competitiveness. Indeed, SMEs that grow by one-third over a three-year period, contribute about as much to job creation as large firms.
According to @McKinsey, banks must prepare for a new growth curve. Strategic precision —the ability to combine technology, capital discipline, and deep customer insight— will distinguish the leaders from the laggards.
According to Kristalina Georgeva IMF Managing Director, lifting growth requires three things: one, regulatory housecleaning to unleash private enterprise; two, deeper regional integration; and three, preparedness to harness AI.
According to The European House – Ambrosetti, the European Union has an opportunity to boost competitiveness and growth by simplifying regulatory and supervisory frameworks, particularly in the areas of sustainability and the financial sector.
According to Ramón Casilda Béjar, Spain, in today’s complex geopolitical landscape, has the opportunity to strengthen its role as a bridge and connecting country between Ibero-America and the European Union, revitalizing investment flows in both directions.
According to @ECB, in moments of acute stress, the public often turns to physical currency as a reliable store of value and a resilient means of payment, underscoring the crucial role it plays above and beyond everyday transactional convenience
According to Juan S. Mora-Sanguinetti, in Spain a 10% increase in regulatory volume leads to a 0.5% drop in employment in companies with fewer than 10 employees.
According to Hélène Rey “In a world where stablecoins, particularly those pegged to the dollar, become an important global payment tool, we must brace ourselves for substantial consequences”.
@judith_arnal proposes reforms for the EU to advance regulatory simplification, starting with consensus on its meaning, with competitiveness as a pillar, plus coordination mechanisms and a governance rethink.