Going back to a debate that was popular in the first half of 2008, we can say that, after all, emerging countries have been able to “decouple” from the dire growth prospects of advanced economies. But it is still uncertain whether solid growth in emerging economies can be sustained over the medium term if external demand from major industrial economies remains subdued for a protracted period. Moving one step forward, we can ask to what extent emerging economies can act as an effective engine for growth in advanced economies through their external  2  BIS Review 172/2010  demand. There are clear incentives for emerging market economies to forcefully promote the growth of their domestic demand and contribute, at the same time, to rebalancing the world economy and to rendering global growth more sustainable. Let me now turn to the second topic: financial flows and financial globalisation. Increased capital inflows into emerging market economies at a time of strong domestic growth is probably the central concern for these economies today; however, coming from a situation in which the risk of a “sudden stop” became very serious, at the end of 2008, the current bonanza does not appear such a bad outcome after all. Yet large capital inflows together with strong domestic demand pressures combine to make for very expansionary economic conditions, posing risks to economic management in the form of overheating, inflation and appreciation pressures, credit booms and asset price overvaluation.
Miguel Fernández Ordóñez: Global rebalancing, asset prices and policy responses Opening remarks by Mr Miguel Fernández Ordóñez, Governor of the Bank of Spain, at the Fifth High-Level Seminar of the Eurosystem and Latin American Central Banks, Madrid, 10 December 2010. *  *  *  Good morning and welcome again. More than three years after the global financial system started to show serious signs of instability and two years after being on the verge of a global economic and financial meltdown, the world economy seems to have avoided that risk, backed by a strong and coordinated policy response. Nevertheless, the strengthening has been uneven and the risk of economic and financial instability is still persistent and significant in some regions, like the euro area. Indeed, it is hard to emphasise sufficiently the challenges ahead and how crucial the present juncture is for the future of our Monetary Union. On the contrary, Latin American economies had learned the lessons from the severe financial and economic disruptions they experienced in the not so distant past, and the challenges they currently face are more similar to those that characterised the period of strong growth prior to the financial crisis. These very different sets of present circumstances make today’s exchange of mutual experiences and policy discussion particularly interesting. The title of today’s Seminar was chosen almost a year ago, but it couldn’t be more timely: Global Rebalancing, Asset Prices and Policy Responses.