But this large contribution to global growth masks important risks to EMEs, in leading the return to sustainable growth. Many EMEs rely heavily on external demand for growth, and therefore will face challenges going forward if advanced economies do not grow fast enough. Over a longer horizon, the export-led growth strategies of large EMEs will be unsustainable, given their implications for the global imbalances.
This suggests that EMEs need to rebalance their growth, toward a greater share driven by domestic demand. Another risk facing EMEs is financial vulnerability. Liberalization of their capital accounts has exposed these countries to the vagaries of financial shocks of external origin, while their underdeveloped domestic financial markets offer little scope for hedging.