Capital Flows to Emerging Markets: heightened short-term risks but robust medium-term prospects | Eurobank
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Capital Flows to Emerging Markets: heightened short-term risks but robust medium-term prospects

• The outlook for capital flows to emerging markets in the short-term remains subdued, with risks tilted to the downside, given that there are elevated risks for disruptive events in the euro area that would trigger new capital outflows.
• However, medium-term prospects are more positive as economic fundamentals in EM will continue to be robust, growth prospects are expected to remain substantially better and monetary policy is expected to remain tighter than in advanced economies, attracting portfolio investment flows.
• The impact of a sudden reversal of capital inflows on emerging market economies due to a deepening of the euro area crisis would be stronger on countries that have attracted significant amounts of hot money over the past few years and on countries with high external financing requirements.