EMs are facing a challenging global environment today

Post-crisis global growth is still elusive after eight years since the global financial crisis broke out, with developed markets on course for recovery at a moderate pace and many emerging markets struggling to regain growth momentum. Reflecting diverging perspectives between DMs and EMs and the prospect of the Fed's rate hike, uncertainties and downside risks associated with potential for global financial market and exchange market instabilities have heightened, notably after the surprise devaluation by China in August. 

Within DMs, especially in the US and UK, abating legacy problems coupled with ultraloose monetary policy and more neutral fiscal stances have contributed to rising output along with declining unemployment but low inflation, as China's growth slowdown brings deflationary pressure globally. Signs of the US domestic economy's firming have increased expectations for the Fed's tightening cycle to start before the end of 2015. The Bank of England is expected to follow sometime in early 2016. In contrast, still sluggish growth and very low inflation in the Euro area and Japan are raising expectations of further monetary easing there. 

The prospects for EMs are less bright due to macroeconomic imbalances, including excessive credit growth, rapid build-up of foreign-currency denominated debt, and large current account or fiscal deficits. Also, structural bottlenecks, China's transition to a more sustainable growth pattern with large trade spillovers, the end of the supercommodity boom, and political tensions are persistent risks for Ems. In addition, the potential of a super taper tantrum when the Fed tightens is not creating positive trends.