After almost a decade since the global financial crisis (GFC) erupted, the long awaited strong global economic recovery has not been realized in spite of unprecedented accommodative monetary policies in the large part of the world (Figure 1). In fact, growth is slowing in many EMEs with a modest recovery in advanced economies (AEs) and recent low prices depressing commodity exporters. After their strong performance during the great recession most EMEs face a synchronous and protracted deceleration in growth rates owing to the weakened external and domestic factors. Some commodity exporting EMEs even suffer from an economic recession. China grapples with the appropriate policy actions and uncertainty associated with the ongoing transformation of the export – investment led growth model to a domestic consumption – services sector driven economy.1 Furthermore, potential growth across the world has declined due to the global slowdown in productivity growth, persistently weak investment, aging population and weakened global trade (Figures 2–3).2 Rising inequality, on the other hand, exacerbates both the recovery and longterm growth problems. To this end, global policy coordination is the way forward. The G20’s framework for strong, sustainable, balanced and inclusive growth with strong commitments on structural reforms as well as aggregate demand stimulating policies provides a good mechanism to serve this purpose. 1  T. Didier, M. A. Kose, F. Ohnsorge and L. S. Ye (2015), Slowdown in Emerging Markets: Rough patch or prolonged weakness?, Policy Research Note 4, World Bank, Washington, DC.

In oil exporting countries where growth has weakened and inflation has gone up by currency depreciation, banks with high foreign currency vulnerabilities or heavy reliance on short-term debt need close monitoring or tighter prudential requirements. Moreover, due to the different internal (growth and inflation) and external conditions (balance of payments strength), monetary policy positions have also diverged. Economies with current account deficits have been facing difficulties to balance internal pressures such as abovetarget inflation and slowdown in growth against reduced global capital inflows. These countries come to terms with limitations on countercyclical monetary policies to support the adversely affected domestic demand from tightened global financial conditions. On the other hand interest rates in other countries such as emerging Eastern European countries rates are at their historically low levels in order to avoid the disinflation imported from the Eurozone. EMEs with higher GDP growth, stronger external current account positions, lower inflation, and more liquid financial markets have managed to mitigate market volatility. Likewise, countries with more resilient financial sectors limited the adverse effects of volatility. As a result, out of 19 EMEs, 9 EM central banks have decreased the policy rate since the taper tantrum, 8 increased and 2 did not change. Overall, policy rate has increased 1070 bps. Along with the easing cycles of AEs central banks and ample global liquidity, the capital flows into EMEs have been increased which encouraged public and private leveraging and fueled credit growth in these countries. In response to the impact of the increased liquidity, EMEs implemented some macro-prudential policies.