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• The significant deceleration of economic growth in advanced economies along with monetary tightening has resulted in the moderation in emerging markets’ economic expansion over the previous year.
• Recent data on economic sentiment indicators across all EM regions point to some improvement in economic activity, after several months of deterioration.• Export growth in EMs has dampened significantly due to the stagnation in world trade, though we expect the slowdown to be contained.• Capital flows to emerging markets have fallen sharply since the third quarter of 2011, mainly because of intensifying financial stresses in the euro area. Concerning portfolio inflows, the prospects are more positive in 2012, compared to the previous year.
• Headline inflation in most EMs has stabilised, as food prices have started to recede from their 2011 peaks. Nevertheless, some upward price pressures still remain.