ECONOMIC RESEARCH

2011 June Capital Flows to Emerging Market Economies

June 01, 2011

Private capital inflows to emerging economies revived sharply in 2010 and should continue to be relatively buoyant in 2011 and 2012 as ongoing strong growth and financial deepening encourage greater foreign investment. We forecast flows to increase to $1,041 billion in 2011 and $1,056 billion in 2012. Most of the $81 billion upward revision of our 2011 estimate since January is due to higher inflows to China and Brazil. China accounts for about 30% of all private capital inflows to the emerging economies we cover, a share that is nearly twice as large as Brazil’s and three times that of India. There has been further monetary policy tightening and exchange rate appreciation in most emerging economies since the beginning of the year, but financial conditions remain too accommodative in many cases.