The Institute of International Finance projected non-resident capital inflows to emerging markets (EMs) at $1.21 trillion in 2018, which would constitute an increase of 0.6% from an estimated $1.2 trillion in 2017. It expected non-resident capital inflows to be equivalent to 3.7% of EM's GDP this year compared to 4.2% of their GDP in 2017. It attributed the anticipated growth in capital inflows to an increase in foreign direct investments, stronger cross-border banking flows, and supportive global financial conditions. It said that downside risks are mainly related to rising global trade tensions, an increase in protectionist measures that would impact EM exports and growth, a rise in external financing needs as a result of a stronger US dollar, as well as high and rising EM debt levels. The IIF revised upward its forecast for foreign direct investment in EMs to $523bn in 2018 from $480bn previously, supported by improved global economic activity and a modest recovery in commodity prices. It added that foreign direct investment in EMs would post an increase of 3.4% from $506bn in 2017. It projected portfolio inflows to drop from $401bn in 2017 to $351bn in 2018, mainly due to rising U.S. bond yields and a stronger US dollar. It anticipated other investment inflows, mainly banking-related flows, to grow from $297bn in 2017 to $338bn in 2018, their highest level since 2013.
Source: Institute of International Finance