According to the latest IMF forecasts, world output will shrink by 1.3% and the advanced economies by no less than 3.8%. However, GDP in emerging markets, though lower than in previous years, will still grow by 1.6%. Despite the crisis, the long-run prospects for emerging market economies remain bright. Projections for long-term growth, based on demographic trends and models of capital accumulation and productivity, suggest that the emerging markets are likely to gain in global importance. A number of studies found startling results regarding the growth prospects for emerging markets. According to one study, Brazil, Russia, India and China (the so-called BRIC economies) could account for over half the size of today’s six largest industrialised economies from 2025 onwards. 1 We have to prepare for a very profound structural rebalancing of world output during the next years. The world economy is changing profoundly, as so should its governance. The creation and the recent reinforcement of the G20 and the enlargement to the G20 of the Financial Stability Board are milestones in this respect. The rise of the emerging economies will also be reflected in the reforms of the international financial institutions. What are the specific implications of the growing role of emerging markets for the euro area? The euro area has close links with emerging market economies. In trade terms, the euro area is actually more open than other major economies. Our exports and imports of goods and services account for more than 40% of GDP, significantly more than in the United States or in Japan.

•  The third way is to expand the investment portfolio to include new asset classes and new geographies for consistent and uncorrelated return streams. This option, while not easy, probably offers the best way forward. Consider new asset classes. Many government funds are increasing their allocation to nontraditional assets such as real estate, infrastructure, and even private equity. •  Australian and Canadian pension funds have been pioneers in infrastructure investing, from as early as the 1990s. 4  BIS central bankers’ speeches  •  Norway’s Government Pension Fund Global plans to increase its real estate investments to as much as 5% of its assets, with a corresponding decrease in its bond holdings. •  CalPers has been increasing its allocation to private equity and real assets, including real estate and infrastructure. Next, new geographies. Over the last 20 years, government funds have steadily reduced their home bias in their equity holdings, investing in markets outside their own country. The big shift in portfolio allocation in recent years has been to emerging markets. If long-term growth prospects for emerging markets are superior to advanced economies, it seems to make sense to increase the strategic allocation to these markets, beyond what is dictated by market capitalisation. The challenge is in finding ways to translate the superior growth performance of emerging market economies into asset returns, given the limited depth of their capital markets. One way is to perhaps invest in advanced economy corporates with significant exposure and presence in emerging markets.