Turkey, Romania, Poland and Morocco are among the countries most vulnerable to slowing investment in developing nations because of their dependence on foreign financing, the Institute of International Finance said.
IIF, the Washington-based global finance trade group, cut its forecast for private foreign capital flows to emerging markets to $1.11 trillion in 2014, the lowest level since 2009. Inflows estimated at $1.15 trillion this year would represent a 3 percent drop from 2012, according to a report released today.
“Global risk aversion has surged amid concerns about the duration of ultra-easy U.S. monetary policy, sending ripples through EMs,” IIF analysts led by Felix Huefner wrote in the note. “Growth in emerging economies has lost some momentum recently, while growth prospects in mature economies have brightened somewhat, thus reducing the relative attractiveness for developed-market investors to move capital abroad.”
Federal Reserve Chairman Ben S. Bernanke said last week that the central bank may pare its bond buying program this year and end it in mid-2014, signaling a reduction in monetary stimulus that helped suppress interest rates worldwide. China’s money-market rates rose to their record highs last week as the People’s Bank of China refrained from adding liquidity into the financial system to ease a cash shortage.
Countries including Turkey, Romania, Poland and Morocco “stand out for their large external financing needs” the IIF said. “If external financing dries up, borrowers could find themselves in liquidity and solvency difficulties.”
The organization predicted total private outflows from emerging markets will swell 7.3 percent this year to $1 trillion.