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As Fed Gets Ready to Raise Rates, Capital Drought Predicted for Emerging Markets


A capital drought in emerging markets could undermine the fragile global expansion, according to a report released by World Bank economists. And the timing couldn’t be worse as the Fed gets ready to hike the interest rate.

After a “golden era” in emerging markets, where many expanded at unprecedented rates to become main drivers of global growth, the slowdown in developing economies is now in its sixth year and at its broadest since the '80s.

Increased financial turbulence could cause capital flows into emerging markets to dry up, the World Bank warned, as net capital flows in emerging markets have been declining, stalling to zero during the first half of 2015, according to Bloomberg.

The report cites numerous reasons for the increased slowdown, such as weak global trade, the commodities slump as demand from China weakens and slowing productivity growth in emerging economies. [Bloomberg]