remarks by javier guzman calafell, deputy governor at the banco de mexico, at the session “ the task for emerging markets ”. reinventing bretton woods committee – ubs international global macro seminar “ managing the soft landing of the global economy ”. washington, dc, april 12, 2019. 1 i thank the organizers for the kind invitation to participate in this panel. the deceleration of world economic activity that we have seen during the last years has encompassed both advanced and emerging market economies. however, when we look at projections by the main international institutions both for the short and the long terms, hopes for a recovery from the current weakness fall disproportionately on the shoulders of the emerging market economies ( emes ). for instance, according to the most recent projections by the imf, the upturn of global growth in 2020 depends entirely on higher growth rates in these countries, and projections for the long term do not show a much different picture. in fact, according to the fund, emerging markets and developing economies ’ share in global growth will increase from around 76 percent this year to 85 percent in 2024. 2 with this as a background, it is obviously important to identify possible roadblocks ahead, not only for the benefit of emes themselves, but in the interest of world economic activity. in general, the external environment faced by emes at present is quite challenging, and the situation is unlikely to change much in coming years. however, i would like to focus on two issues which, in my view, are of special importance at this stage. the first is related to the the views and opinions expressed in this document are the sole responsibility of the author and do not necessarily represent the institutional position of the banco de mexico or of its board of governors as a whole. international monetary fund ( 2019 ) : “ world economic outlook ”, april. implications, from a medium - to long - term perspective, of the potential for a more gradual normalization of monetary policy in the advanced economies ( aes ). the second focuses on the consequences of the recent protectionist trends for global value chains, and the resulting repercussions on emes. following a period of turbulence and volatility in late 2018, international financial markets have displayed a more orderly behavior since the turn of this year. this has been particularly beneficial for emes. per some estimates, portfolio capital flows to these countries increased more than three - fold between the last quarter of 2018 and the

price of protectionism ”, remarks at the federal reserve bank of kansas city ’ s 42nd economic policy symposium, jackson hole, wyoming, 25 august. organisation for economic co - operation and development ( 2018 ) : “ trade policy implications of global value chains ”, trade policy brief, december. international monetary fund ( 2019 ) : “ the drivers of bilateral trade and the spillovers from tariffs ”, chapter 4 of world economic outlook, april. technology adoption and knowledge spillovers arising from the close interaction between firms in less developed economies and foreign counterparts that may be at, or close to, the technological frontier, productivity is enhanced internally by the specialization, external competition and the increased access to higher - quality and more costeffective inputs inherent to gvcs, while the scope to leverage scale economies may as well play an important role. 9 closely related to the above, gvcs are to a significant extent responsible for some beneficial macroeconomic outcomes of recent times, including subdued price pressures resulting from lessened bargaining power in a number of industries and input markets. uncertainty related to trade frictions and the ensuing decline of crossborder flows of goods and services, is most probably behind the recent moderation of industrial activity, particularly in sectors that are heavily reliant on gvcs, such as manufacturing. 10 the downshift that has been observed in global industrial production since last year is partly the result of transitory shocks such as the ones experienced by the european auto industry a few months back. however, manufacturing and other industrial activities are clearly facing significant headwinds from protectionism and dislocations to gvcs, that may intensify in coming years should risks to international trade continue to materialize. criscuolo, c. and j. timmis ( 2017 ) : “ the relationship between global value chains and productivity ”, international productivity monitor, no. 32 : 61 - 83, spring ; and international monetary fund ( 2018 ) : “ is productivity growth shared in a globalized economy? ”, chapter 4 of world economic outlook, april. the annual growth rates of industrial production, as well as the level of manufacturing pmis, have dropped to readings not seen since 2016. i would like to conclude by noting that although, as i said at the beginning, expectations of an improvement in the world economic situation in the short and long terms depend crucially on the performance of emes, their realization is far from assured. potential growth in these countries has fallen