Euro Area Crisis Seen as Major Factor in Sharp Reduction in Net Private Capital Flows to Emerging Markets

January 23, 2012 — The IIF said net private capital flows to emerging markets this year are likely to total $746 billion, down from an estimated $910 billion in 2011, which in turn is a decline from the 2010 level of $1,040 billion. On the assumption of a gradual stabilization of the European economic situation in the course of this year and a revival of albeit subdued growth in Europe in 2013, the IIF projects a recovery in flows next year to around $900 billion.

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Emerging Markets Bank Lending Conditions Survey - 2011Q4

The December 2011 IIF EM Bank Lending Conditions (EMLC) survey showed a significant deterioration in the economic outlook, with global banking conditions weakening substantially over the past 3 months in all major regions. Most importantly, international funding conditions have tightened appreciably further across all regions. The rapid deleveraging of European banks has continued to adversely affect Emerging Europe. All indices for Emerging Europe, especially the credit standards index, declined to worrying levels. The brightest aspect of the downbeat survey is that the demand for credit in emerging economies is generally holding up quite well (with the exception of Emerging Europe).

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Euro Briefing: Crunch Time

Euro Briefing is a new IIF publication designed to provide our membership with a comprehensive, but manageable survey of the Euro Area crisis and its likely evolution. This Briefing will be maintained on the IIF website and updated periodically, as appropriate. The Euro Briefing is the result of the collective effort of the IIF Economics and Capital Markets departments.

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The Middle East: Revolutionary Change and the Rise of Geopolitical Risks

January 11, 2012 — A year into the ‘Arab Spring’ and the political landscape of the Middle East has been fundamentally transformed. Regime changes in Tunisia, Egypt and Libya; continued violence in Syria and Yemen; and uncertainties and rising tensions elsewhere in the region, all have combined to raise the level of geopolitical risks with far reaching implications for the global energy and financial markets. The spreading uncertainties have been further aggravated by rising tensions around the tightening sanctions against Iran and the threat of countermeasures by the country’s authorities, by the mounting sectarian tensions within Iraq with implications for oil and regional security, and by the escalating violence and repression in Syria with implications for regional stability. Meanwhile, the economic situation of transition countries, notably Egypt, continues to deteriorate while the long term challenges of structural reform, growth recovery and job creation mount in these countries.

These and related issues are the subject of an IIF teleconference conducted by George T. Abed, Senior Counselor and Director for Africa and the Middle East and his colleagues.

Listen to the teleconference

January 2012 Capital Markets Monitor

Five Years On, Credit Risk Remains Acute

• The defining feature of the global financial crisis has been sharply elevated credit risk (including counterparty risk) causing substantial declines in the market prices of many financial assets.
• As the crisis has spread from the financial sector to the sovereign sector, particularly in the Euro Area—and now connecting the two in a vicious circle—policy mistakes have aggravated the situation. Consequently, five years on, banking systems in Europe and the U.S. remain fragile, and even dysfunctional in some cases.
• This reinforces the deleveraging process which has kept the economic recovery feeble. The key question for 2012 is whether the resilient parts of the global economic and financial system––the emerging market economies and the non-financial corporate sectors––are robust enough to cushion the potential impact of high credit risk in the mature economies.

Following the monthly publication of the Capital Markets Monitor Hung Tran hosted a teleconference on January 5, 2012. The presentation and audio recording of the briefing are now available for viewing or download.

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