In addition, the lower growth associated with the slowdown in China and declining terms of trade have also contributed to a reversal of capital flows towards the advanced economies. But at the same time, concern about the slowing global economy and its possible spillbacks to advanced economies has also weighed on the Fed’s decision making.
Do these developments point to an impending crisis in emerging markets? Some commentators point to parallels with the Asian crisis in 1998/99. The outlook is challenging, but I would not characterise it as a crisis. Emerging markets in general are better equipped today to meet the challenges posed by terms-of-trade deterioration and capital-flow reversals.