|
By Ana Maria Santacreu, Economist
In a recent study, the International Monetary Fund (IMF) reported that the decline in growth prospects has caused a slowdown in net capital flows in 45 emerging markets since 2010.1 This slowdown has been driven by both a decrease in inflows and an increase in outflows. According to the study, the decrease accounted for 4.9 percent of the sample’s gross domestic product (GDP). Both the decrease in inflows and the increase in outflows occurred across all asset types (that is, debt portfolio, as well as foreign direct investment and other investment).
However, there have been regional differences in the slowdown, with eastern Europe experiencing a more pronounced slowdown in net capital outflows and Latin America suffering less, driven in part by higher flexibility in its exchange rate.
Compared with past episodes where net capital flows slowed down to the point of causing financial and debt crises (the 1980s and 1990s), the study finds that emerging markets are more resilient now. In a 2015 article, I documented the factors that make emerging markets more vulnerable to capital outflows.2 Consistent with that study, the IMF’s report finds that, among other reasons, emerging markets are now less vulnerable due to:
The improvement of emerging markets in these areas is particularly important to avoid large depreciations in their currencies and, thus, current account crises that they have previously experienced. It also makes them more resilient to changes in policy announcements by the governments and central banks of more advanced economies. This was a big area of concern during 2008-09, when governments in advanced economies applied expansionary policies as a consequence of the financial crisis that started after the collapse of Lehman Brothers.
The stronger the economic fundamentals of emerging markets are, the more resilient they become to changes in policy announcements and to changes in the prospects for growth.
1 “Too Slow for Too Long,” International Monetary Fund World Economic Outlook, April 2016.
2 Santacreu, Ana Maria. “The Economic Fundamentals of Emerging Market Volatility,” Federal Reserve Bank of St. Louis Economic Synopses, 2015, No. 2, Jan. 30, 2015.
The St. Louis Fed uses Disqus software for the comment functionality on this blog. You can read the Disqus privacy policy. Disqus uses cookies and third party cookies. To learn more about these cookies and how to disable them, please see this article.
Subscribe to
On the Economy
Get notified when new content is available on our On the Economy blog.
The On the Economy blog recently ranked in the top 20 on Feedspot’s list of top bank blogs.
About the Blog
The St. Louis Fed On the Economy blog features relevant commentary, analysis, research and data from our economists and other St. Louis Fed experts.
Views expressed are not necessarily those of the Federal Reserve Bank of St. Louis or of the Federal Reserve System.
Popular Posts
Contact Us
For media-related questions, email mediainquiries@stls.frb.org. For all other blog-related questions or comments, email on-the-economy@stls.frb.org.
Categories
- Vulgar, obscene, profane or otherwise disrespectful or discourteous
- For commercial use, including spam
- Threatening, harassing or constituting personal attacks
- Violating copyright or otherwise infringing on third-party rights
- Off-topic or significantly political
The St. Louis Fed will only respond to comments if we are clarifying a point. Comments are limited to 1,500 characters, so please edit your thinking before posting. While you will retain all of your ownership rights in any comment you submit, posting comments means you grant the St. Louis Fed the royalty-free right, in perpetuity, to use, reproduce, distribute, alter and/or display them, and the St. Louis Fed will be free to use any ideas, concepts, artwork, inventions, developments, suggestions or techniques embodied in your comments for any purpose whatsoever, with or without attribution, and without compensation to you. You will also waive all moral rights you may have in any comment you submit.