Asian and Latin American emerging economies are particularly sensitive to changes in the international arena. In Latin America, GDP data for the second quarter show a significant slowdown. The Brazilian economy, in particular, is worrying given its high budget deficit and significant current account shortfall (although the latter has begun to be corrected), along with inflation that needs to be contained and corrected as soon as possible. The IMF projects Brazilian GDP will fall by 3% this year and will fall further, albeit moderately, in 2016. I would like to indicate that the impact of the downturn in the emerging economies on Spanish banks, even for those with significant exposure to some of these economies, has been moderate. The geographical diversification of their businesses and the adjustments made to their management have contributed to the stability of their balance sheets. Developments in the euro area As for economic developments in the euro area, growth in the second quarter was external demand-led, although internal demand continues clearly to support disposable income arising from lax monetary policy, the neutral fiscal policy stance, low energy prices and the improvement in the labour market. 2  BIS central bankers’ speeches  In September, the ECB revised downwards its growth projections for the euro area to 1.4% in 2015, 1.7% in 2016 and 1.8% in 2017. It should also be noted that the approval and start-up of the Third Bailout Programme for Greece has mitigated the risks in the area, a source of uncertainty for the Spanish and other European economies.
Large exchange rate movements have at times been a source of instability. In Norway, the household, banking and corporate sectors as a whole take on currency risk to a limited extent. Furthermore, government finances are solid, and fiscal policy is not affected to any great extent by short-term exchange rate movements. This allows the exchange rate to play an important role in absorbing shocks to the economy. We have thus been able to reap the benefits of an efficient international capital market without having to deal with its challenges. 1/3  BIS central bankers' speeches  At the same time, in a world of high capital mobility and extensive trade, monetary policy’s room for manoeuvre is constrained by the exchange rate channel. In a small open economy with a floating exchange rate, the domestic interest rate can differ from interest rates abroad. However, an interest rate differential that becomes too wide can lead to considerable exchange rate volatility, which will in turn feed through to inflation, output and employment. Thus, the domestic interest rate cannot be set without regard to the level of external interest rates. The room for manoeuvre in monetary policy is further constrained in periods when external interest rates are close to or below zero. Although the financial crisis in 2008 had a marked impact on Norway, our economy was affected to a lesser extent than most other advanced economies. There are a number of reasons for this. The Norwegian economy was in an upturn when the crisis hit.