THE INTERNATIONAL ECONOMIC ENVIRONMENT
The global economy expanded at a modest pace in 2013, with uneven momentum across continents. In advanced countries, growth remained on a path of gradual improvement, led by a private-sector recovery in the US market. Europe area emerged from recession while economic activity improved in Japan after implementation of stimulative policies. The pace of recovery, however, was moderate as policy uncertainties and structural constraints continued to affect overall demand. Following the above-trend growth over the last few years, growth in the emerging economies moderated as a prolonged weakness in external demand spilled over to the domestic economy. Few emerging economies had also introduced policy measures to counter potential domestic vulnerabilities, which led to some changes in domestic demand.
In addition, the shift in market expectations of a normalisation in US monetary policy towards the second half of the year led to large capital flow reversals from the emerging economies. Against this backdrop, global inflation slowed, reflecting the moderate demand conditions in many economies and lower non-energy commodity prices.