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Emerging markets inflows to top $1 trillion

Washington, June 1, 2011

Private investment money pouring into emerging markets could reach $1.041 trillion in 2011, up from a previous estimate of $960 billion, a global bank group said on Wednesday.   

"Most of the $81 billion upward revision of our 2011 estimate since January is due to higher inflows to China and Brazil," the Institute of International Finance said in a report.

However, it expected foreigners to withdraw capital from Egypt this year in the wake of recent political turmoil. It estimated the country has already "suffered withdrawals of about $16 billion in private foreign capital" this year.

The bank said it expected private capital inflows to emerging economies to rise only slightly in 2012, to $1.056 trillion, as a bounce back from the global financial crisis begins to lose some of its spring.

It estimated private capital inflows to emerging economies soared to $990 billion in 2010, about $350 billion higher than in 2009.

"The high level of capital flows to emerging markets reflects the rising weight of these economies in the global economy and their very strong performance relative to the mature economies in recent years," IIF managing director Charles Dallara said in a statement.

The bank forecast economic growth in emerging markets to moderate to 6.1 percent in 2012 from 7.2 percent in 2010 and also expected the spread in interest rates between developed and emerging economies to stabilize next year after a further widening in the near term.   

The surge of private capital has complicated policy in emerging markets, which are worried by the potential for the inflows to cause inflation, asset bubbles and a loss of export competitiveness.   

The International Monetary Fund has recently condoned countries imposing controls on the inflow of capital in situations where further exchange rate appreciation is not warranted, reserves are adequate and there is no need for tighter fiscal, monetary and macroprudential settings. 

But the IIF said countries should be cautious about introducing capital controls in response to high inflows. "In most cases, strong capital flows and rising exchange rates are simply the counterparts of strong fundamentals and a necessary part of macroeconomic adjustment," IIF chief economist Philip Suttle said in a statement. 

"Moreover, capital controls are a distraction from the main policy task of reducing aggregate credit growth and inflation," Suttle said.-Reuters




Tags: emerging markets | FDI | IIF | Private Investment |

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