The Global Economy Without Steroids

While the fact that the advanced economies are bouncing back is good news for everyone, it raises an important question for emerging economies: Is business-as-usual good enough to compete in this new environment? The short answer is no.

WASHINGTON, DC – Economic growth is back. Not only are the United States, Europe, and Japan finally expanding at the same time, but developing countries are also regaining strength. As a result, world GDP will rise by 3.2% this year, up from 2.4% in 2013 – meaning that 2014 may well be the year when the global economy turns the corner.

The fact that the advanced economies are bouncing back is good news for everyone. But, for the emerging and developing economies that dominated global growth over the last five years, it raises an important question: Now, with high-income countries joining them, is business as usual good enough to compete?

The simple answer is no. Just as an athlete might use steroids to get quick results, while avoiding the tough workouts that are needed to develop endurance and ensure long-term health, some emerging economies have relied on short-term capital inflows (so-called “hot money”) to support growth, while delaying or even avoiding difficult but necessary economic and financial reforms. With the US Federal Reserve set to tighten the exceptionally generous monetary conditions that have driven this “easy growth,” such emerging economies will have to change their approach, despite much tighter room for maneuver, or risk losing the ground that they have gained in recent years.

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