Emerging Market Capital Flows: better but not great in 2017

Capital flows to emerging markets should continue to improve gradually in 2017, according to the Institute of International Finance’s (IIF) November Capital Flows Report.
“After some turbulence earlier this year, we expect the current revival to continue into 2017,” said Charles Collyns, managing director and chief economist at the IIF. “Markets have been generally buoyant since the Brexit vote and greater stability in China and pickup in activity more broadly have also helped. Provided these trends continue, we expect 2017 to be better, but not great.”

The IIF projects private non-resident inflows to reach $769 billion for its group of 25 emerging market economies in 2017, up from $640 billion in 2016. Taking account of resident outflows, the IIF forecasts a fourth consecutive year of net capital outflows of $206 billion, mainly from China, but the rate of outflows should continue to moderate.

“A strong shift in market expectations for the Fed’s policy rate trajectory and a loss of confidence in RMB stability from China are among the biggest risks to our outlook,” said Hung Tran, executive managing director at the IIF. “Global political risks are also potential clouds on the horizon as the backlash to globalization in mature economies increases.”

For more information visit www.iif.com.