Emerging markets set to register first capital outflows since 1988 in 2015

LONDON (ShareCast) - (ShareCast News) - Capital (Other OTC: CGHC - news) flows to emerging markets are set to reverse in 2015 for the first time in almost three decades, following what some observers described as a staggering increase in their levels of indebtedness. Developing economies will see $540bn in net outflows, the first since 1988, as residents from those countries funnel money abroad and foreign inflows fall below the levels seen at the height of the global financial crisis, the Institute for International Finance said overnight on Thursday.

That follows $32bn of inflows for 2014.

The warning came ahead of the Inernational Monetary Fund and World Bank meetings in Lima next week.

Furthermore, as opposed to what occured in 2008 this time around the drivers behind the outflows were internal "Flows to Ems have weakened sharply in volatile market conditions and [following] a jump in risk aversion .... There are increasing concerns about a slwodown in EM growth, ampified by rising concerns about China and continuing uncertainty about Fed lift-off," said Charles Collyns, the IIF´s chief economist.

"The factors holding back flows wilbe persistent , implying a protracted drought rather than qick relief." The IIF estimated private outflows from EM´s would amount to more than $1trn in 2015, with repayments of foreign currency loans by EM companies - especially from China - the biggest single cause of the outflows.

Indebtedness at non-financial corporations in EMs had incersed more than fivefold over the past decade to reach $23.7trn.

"The speed of the buid-up of debt has been stagerring," said Hung Tran, the IIF´s executive managing director.

On Thursday evening, Allianz´s economic adviser Mohamed El-Erian warned the US could not offset slowing emerging market growth alone and that they might drag the Eurozone back into recession.

His words echoed by European Central Bank Governor Mario Draghi in a speech delivered on Thursday night in New York. He said the monetary union must be completed.

"It (Other OTC: ITGL - news) is in our interest. It is also in your interest and that of everybody, everywhere."