In the words of Guillermo Calvo, a "sudden stop" (SS) is a situation where net capital inflows suddenly ceases to feed an emerging economy, resulting in a sharp and pronounced recession. Whereas, prior to the collapse of Lehman Brothers, emerging countries appeared relatively unaffected by the incipient crisis, they all experienced hefty capital outflows from autumn 2008 onwards. This contraction of capital flows persisted until spring 2009, when took place the announcement of an increase in the IMF's resources. Since then substantial inflows have compensated for the capital outflows. Only a few European emerging countries continued to experience SS after that turning point.

Outflows of capital have led to sharp and pronounced recessions. Countries experiencing SS can be found in all geographic areas, with a high concentration in emerging Europe. It was in this region that the sudden stop of inflows was the sharpest, although some Asian countries too were seriously affected.

In most of the countries where capital inflows resumed on a significant scale from spring 2009 onwards, rapid economic growth has resumed quickly and imports have bounced back strongly, which is a normal pattern of recovery from this type of crisis. This applies to Asia more especially, and Latin America to a lesser extent.

The recovery is proving softer in countries that have not seen a positive swing in capital inflows or in their terms of trade, as in Central Europe. Indeed, this recovery could take longer to materialise in certain European emerging countries.

Trésor-Economics No. 76