Private capital flows to emerging markets to reduce sharply this year: IIF
2012-01-25 12:43:42
The eurozone crisis is having such a negative impact that emerging markets will see a sharp reduction in net private capital flows, the Institute of International Finance (IIF) forecasted on Tuesday.
The IIF said net private capital flows to emerging markets this year were likely to total 746 billion dollars, down from an estimated 910 billion dollars last year, which in turn was a decline from the 2010 level of 1,040 billion dollars.
"The sovereign debt difficulties in a number of European countries are having a growing impact on the global economy and on sentiment in financial market," said Charles Dallara, IIF managing director, adding that "The crisis is contributing to bank deleveraging, which is damaging the prospects for both growth in Europe and for capital flows to emerging markets."
Private capital inflows are comprised of foreign direct investment, portfolio equity investment, commercial bank flows and non-bank flows. But there would be no much variation in foreign direct investment and portfolio equity investment in terms of volume, said the IIF.
The IIF estimated that net commercial bank flows to emerging markets declined to 137 billion dollars in 2011 from 162 billion dollars in the previous year. For 2012, it projected a sharp further fall in bank flows to a total of 38 billion dollars.
The new forecasts also showed declines in non-bank flows, comprised of mostly bonds, in 2011 to 301 billion dollars from 319 billion dollars in 2010, and a substantial drop in the total is now seen for this year to 211 billion dollars.
Commenting on the eurozone crisis at an IIF press conference in Zurich, Dallara said, "Progress has been made by Euro Area leaders toward stabilizing the sovereign debt market. However, the leaders, who are due to meet next week, need to do still more at the national and regional levels to restore market confidence on a sustained basis."
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 projected a recovery in flows next year back to around 900 billion dollars.
The IIF is the global association of financial services firms with more than 450 member institutions, representing private financial sector in negotiation on Greece's debt restructuring.