Capital Inflows Seen Jumping 30%

Net private inflows to LatAm are expected to leap 30% this year to $176.5bn from $135.7bn in 2009, according to the Institute of International Finance (IIF). This includes $85.0bn net direct investment and $37.4bn from portfolios. “Net inflows of foreign direct investment should rebound from a depressed level in 2009 and net borrowing from banks should resume (in part driven by the recovery in trade flows),” says the IIF in a report on EM flows. It expects a slight reduction, to $172.5bn in 2011. The forecasts are included in an updated outlook on EM, including a prediction of $722bn flows overall, an upwards revision of $50bn since October and a 66% year-on-year rise. The IIF anticipates a major upswing from last year’s trough, describing it as the fourth such move in capital flows to EM since such investing came back into fashion in the middle of the 1970s. “It seems most likely that the bias of new flows will be towards large emerging economies with a significant scope to expand a domestic consumer market, especially Brazil, China and India,” says the IIF. The sell-side group expects 4.7% expansion in LatAm GDP this year, following a 2.3% contraction in 2009, and 3.7% growth in 2011. This is more than the global 3.2% and 2.9% GDP growth average expected this year and next, respectively. The IIF expects a 5.8% jump from Brazil this year and 4.0% expansion in 2011.