The Institute of International Finance is forecasting negative global growth for 2009, accompanied by a plunge in net private capital flows to emerging markets.

The group predicts that global output is likely to see negative growth of 1.1% in 2009, after a 2% advance in 2008. It also predicts that growth in the mature economies will be negative 2.1% this year after 0.9% growth in 2008. Emerging markets are expected to see further real growth, but with a gain of only 2.7% this year down from 5.7% last year.

The IIF also predicts that the volume of private capital flows is likely to be just US$165 billion this year, down from an estimated US$466 billion in 2008, which was itself a sharp drop from 2007’s record volume of US$929 billion.

“The subdued level of net private capital flows to emerging markets that is in prospect for 2009 is in line with the major slowdown of global economic growth. Indeed, we are now anticipating negative world growth for 2009,” said IIF managing director Charles Dallara.

“While all components of net private capital flows have recently weakened appreciably, the most significant weakness is for net bank lending where we now see a net outflow from the emerging markets of about US$61 billion this year, after a net inflow last year of US$167 billion and a record of US$410 billion in 2007,” he added.

The IIF said that while declines in net private capital flows are expected for all emerging market regions, the most substantial fall from previous levels will be for emerging Europe, where the projected volume is seen at just US$30 billion, after an estimated US$254 billion in 2008 and US$393 billion in 2007. Net private capital flows into Latin America are expected to be halved, with a forecast 2009 volume of US$43 billion following an estimated US$89 billion in 2007 and US$ 184 billion in the previous year. For emerging Asia, the projected volume of inflows is US$65 billion, after US$96 billion last year and US$315 billion in 2007.

The IIF said that the recession and the financial crisis in the mature economies are the prime causes of the declines in net private capital flows to emerging markets. Significant reductions in oil and other commodity prices are also key factors.

IE