US bank JP Morgan has cautioned that if former President Donald Trump’s “America First” ideas continue to gain support, emerging economies like Nigeria may experience a sizable capital flight.
This caution is based on a Reuters story that cited a JP Morgan remark. Nigeria, one of Africa’s major economies, is surely included in the report’s reference to emerging markets, even though it was not directly addressed.
According to JP Morgan, emerging markets might be going through the dreaded “sudden stop” of capital flows. This is because Trump’s economic policies, such as tax cuts and tariffs, boost the American economy while deterring investment from emerging countries.
The investment bank disclosed in a research note that, in the most recent quarter, “net capital outflows” totaling $19 billion had already been reported from developing economies, except China. In the first quarter of 2025, outflows are anticipated to reach an extra $10 billion.
The bank warned that such an event should not be undervalued, saying, “To put it simply, using the widely accepted academic definition, this would signal that EM ex-China is on the verge of a sudden stop.”
A “Sudden Stop”: What Is It?
A sudden stop in capital flows can starve emerging economies of the funds they need to grow or, in some cases, maintain stability. Analysts worry that if they are unable to obtain capital, these economies will encounter difficulties ranging from slower economic growth to more severe financial crises.
JP Morgan stated that a crisis unique to emerging markets is not the cause of the current halt in capital flows. Rather, it is mostly associated with the tightening of financial conditions worldwide due to Trump’s economic initiatives.
The United States is now a more desirable location for investment capital because of these policies, which have increased the possibility that interest rates will remain high for an extended period.
“As was the case in 1998-2002, 2013, or 2015, this is not a situation where specific EM countries are under pressure and are facing balance of payments or currency crises,” JP Morgan explained.
Instead, it’s one of the policy uncertainties and the robust U.S. economy that pulls flows out of EM.
Furthermore, a robust U.S. economy rerouting global capital flows drives the current climate rather than a bad U.S. economy causing a global risk-off mentality.
What Follows?
Trump’s future policy choices and essential U.S. economic indicators like retail sales, inflation, and employment will significantly impact how this situation develops. According to JP Morgan, these elements may also impact how the Fed decides to modify interest rates.
- According to JP Morgan, most emerging markets, including Nigeria, should be able to tolerate the shock of an abrupt halt in capital flows, notwithstanding the dangers.
- Nonetheless, nations like South Africa, Malaysia, Hungary, and Romania were found to be more susceptible to these outflows.
- Nigeria’s officials may need to prepare for the possible effects of the U.S. economy while strengthening the local banking system as the country continues to manage these global economic challenges.
- Just $3.9 billion in total capital inflows were made into Nigeria in the first nine months of 2024, compared to $5.3 billion in 2023. This is equivalent to $23.7 billion in 2019.
