The red-hot U.S. economy is drawing billions of dollars in capital from emerging markets, stirring concerns that investor flight may destabilize poor countries where Covid-19 infections remain high and the prospect of a robust economic recovery seems distant.
According to figures compiled by the Institute for International Finance, a research body for international banks, developing countries saw an outflow of capital in March of $5.16 billion. This week, Turkey, which raised official interest rates to contain a rise in inflation and a drop in its currency, saw the biggest weekly outflow of capital since 2015.
While modest, the March outflows were the first from emerging markets since the Biden administration’s $1.9 trillion economic-support package, combined with a rapid vaccination program, dramatically raised expectations for U.S. economic growth. Economists project the U.S. economy will grow 6.5% this year, the fastest pace in three decades.
Although largely good for the global economy, the torrid growth in the U.S. is straining some weaker countries.
As investors rush to buy U.S. assets, they have driven U.S. Treasury bonds yields sharply higher this year. Should that continue, economists worry that the higher returns offered for riskless investments in the world’s largest economy could pull money from emerging markets, where vaccine campaigns have barely begun.
