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Documents & Resources

October 1, 2015

Capital flows to emerging markets have weakened sharply in recent months. We project 2015 non-resident capital inflows to fall below 2008 levels. With resident capital outflows rising, net capital flows to EMs in 2015 are forecast to be negative for the first time since 1988. Unlike the 2008 crisis, the pullback from EMs has been driven primarily by internal factors, reflecting a sustained slowdown in EM growth, amplified by rising uncertainty about China’s economy and policies.

August 21, 2015

* There have been recent reports about capital outflows to the tune of $1 trillion from emerging markets.
* We disagree with the underlying estimations and look at a range of measures of capital flows.
* IIF estimates of the same concept and a broader look at capital flows developments do show a recent weakening of EM capital flows but at a much smaller scale than the purported $1 trillion.

May 28, 2015

After a slow start to the year, private capital inflows to EMs are projected to subside to $981 billion this year, which would be the weakest outcome since the global financial crisis. In part, the weakness in flows projected for 2015 reflects developments that have already occurred as capital inflows are estimated to have reached a six-year low in 2015Q1 in the context of weak EM GDP growth. We project a pickup in flows in 2016, but stress downside risks related to the possibility of more aggressive Fed tightening and continued stagnation in global growth.

April 23, 2015
This paper provides a concise summary of the vast literature on the drivers of capital flows to emerging markets. The importance of different drivers varies across different kinds of capital flows (Figure 1). External "push" factors like U.S. interest rates and global risk aversion matter most for portfolio flows. By contrast, domestic "pull" factors like growth and country risk are most important for banking flows.
January 14, 2015

After a rough ride in 2014, we expect 2015 to be another stressful year for capital flows to emerging markets. We project total EM inflows to decline further, after a substantial drop last year, as the Fed starts to raise policy rates and EM growth remains lackluster. Flows during the year are again likely to be volatile, as markets are affected by shifting expectations of the Fed’s policy trajectory, oil market uncertainty and political risks.

January 14, 2015

This note provides estimation details that complement analysis presented in our January 2015 EM Capital Flows Report (pages 11-13). We estimate a simple econometric model to examine the link between the incidence of emerging market crises and Fed tightening cycles. Our results suggest that there is a close relationship between U.S. monetary policy and EM crises. Initial rate hikes by the Fed are associated with a higher incidence of EM crises, especially when Fed tightening occurs faster than market participants expected.

October 2, 2014

Capital flows to emerging markets have continued to be very choppy. Flows surged over the summer, particularly to Emerging Asia, but have dipped sharply since August. We project total private inflows to reach about $1,160 billion in 2014, which would still be $80 billion below the 2013 level — primarily due to the collapse of flows to Russia. Inflows have been supported by the prospect of additional ECB easing, at a time when the Fed’s steps towards exit have been very gradual. Going forward, increasing divergence in Fed and ECB monetary policy settings will provide a more ambivalent external environment for emerging markets that could lead to renewed volatility.

May 29, 2014

Private capital inflows to emerging markets are benefiting from a supportive global environment, including an improving macro outlook and strong risk appetite. The crisis in Ukraine is weighing heavily on flows to Russia, however, which is likely to result in a decline in aggregate capital flows to EMs in 2014. This projected decline also reflects reduced inflows to China, given the government’s efforts to discourage short-term capital inflows. Capital flows to EMs remain vulnerable to a possible escalation of the Ukraine crisis and surprises in the timing, pace and magnitude of eventual Fed policy tightening.

Following the publication of the May 2014 Capital Flows Report, Charles Collyns hosted a teleconference on May 29, 2014. The recording of the briefing and the Q & A session is now available for replay.

Download the teleconference

March 12, 2014
January 30, 2014

Emerging market conditions have continued to be quite choppy, including a significant market correction in early 2014. We do not anticipate a sustained pull-back from emerging markets, but investors have become increasingly sensitive to country risks, which will test countries that experience heightened political uncertainties or do not take timely and decisive measures to address weaknesses in policy frameworks. As our baseline scenario, we continue to expect a gradual rebound in capital flows in 2014 and 2015, in line with a projected sustained pick-up in world growth and a gradual Fed exit. However, flows will remain at a much lower level relative to GDP than over 2010-2012 and uncertainty around our baseline projection remains high.