with a gradually increasing scope. the first comprehensive eu free trade agreement ( fta ) with an asian partner ( south korea ) has been in force since 2011, rendering 70 % of bilateral trade duty - free. at the end of 2012, the eu and singapore concluded a comprehensive fta, the first eu agreement with an asean country covering trade and services. talks on investment are on - going. fta negotiations with japan began in april 2013, while talks on a comprehensive investment agreement with china started in january this year. the stronger links between asia and europe which i just mentioned have deepened the interdependency of the two areas. the imf estimates that a – 1 % growth shock in emerging markets would have a negative impact on euro area output of – 0. 3 %. 1 internal estimates suggest that a shock of that size in china alone would bring down gdp in the euro world economic outlook, april 2013, chapter 2. bis central bankers ’ speeches area by 0. 1 – 0. 2 %. 2 however, these impacts could be larger if the shock was accompanied by confidence effects, a rise in global risk aversion and capital flow reversals since the financial crisis, growth in emerging markets has come down considerably, currently standing at about 4 % as compared with over 6 % in the period 2000 – 07. china has experienced one of the largest drops in its growth rate, from over 10 % before 2008 to 7. 7 % last year. external factors such as lower demand from advanced economies and tighter global financial conditions can probably explain a good part of this growth deceleration. however, the question remains whether we might not be witnessing a more structural change in asia ’ s growth potential. i would like to focus briefly on some examples concerning emerging asia ’ s two largest economies, china and india. in china, demographic developments and declining returns on very high investment in a number of heavy industries are likely to be behind some of the recent growth deceleration. in addition, high credit growth and increased leverage since 2008 has led to very high corporate debt, increasing risks in the financial system. it is clear that china ’ s new government is implementing a far - reaching programme of structural reforms, including in the financial sector. for instance, china has already made significant progress in liberalising interest rates. formally, only bank deposit rates are still controlled directly by authorities. but de facto liberalisation has progressed even further as non - bank institutions have recently offered consumers alternatives, for instance in

an address by fundi tshazibana, deputy governor of the south african reserve bank ( sarb ), at the nedgroup investments 11th annual treasurers ’ conference central banking in an era of stagflation risk : a view from the mpc 25 august 2022 introduction good afternoon and thank you for the invitation to address you today. nowadays it feels very strange to be in front of a live audience, instead of a screen. three years ago, when i spoke at this conference, the world was a different place. when the covid - 19 crisis started, we all said that everything was different. two years later, everything is different again. trying to figure out these ‘ new differents ’ certainly feels like i ’ m lost in the multiverse or my daughter ’ s version of the ‘ upside - down world ’. in october 2021, wordle took the world by storm as people tried to guess the letters that made up the 5 - letter word of the day. the most popular game back in 2020 was also about letters … specifically which letter shape would describe the economic recovery. o would it be a v - shape, with a quick downturn and equally quick rebound? o an l - shape, with a collapse to a persistently lower level of output? o or a k - shape, with a recovery for the rich and an ongoing recession for the poor? everyone had their favourite letter. despite all the imagination that went into crafting these scenarios, i don ’ t recall anyone warning of global stagflation. but nowadays, everyone is worried about that toxic mix of high inflation and weak growth. i ’ m not sure what letter could have denoted this outcome. page - 1 - of 8 the journey since 2020 so how did we get here? and where are we going? advanced economies went into the covid - 19 crisis on the back of a decade of subdued growth and below - target inflation. central bankers invested heavily in strategies to deal with the zero lower bound on interest rates to avoid getting stuck in japan - style ‘ lowflation ’. worries about high inflation were often considered as dated and alarmist. this was particularly the case in the united states. new fiscal thinking also emphasised taking advantage of interest rates that were low relative to growth rates. all of this suggested that macroeconomic stability was secure and there was ample scope for aggressive policy action to manage the covid - 19 crisis. in emerging markets, the situation looked very different. few