Hidden Rebalancing

Next year, global growth is expected to be near 3.1%, almost the same as this year.

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To many observers, such steadiness suggests a world economy drifting sideways, neither slowing nor accelerating.But the stability implied by the headline figure is the product not of inertia, but of a rebalancing that is quietly reshaping how global savings and investment interact.

The core message of the Institute of International Finance's latest Capital Flows Report is about shifting growth patterns. The United States is cooling after a strong post-pandemic period, whereas Europe and Japan, long seen as weak links, have found a firmer footing. While China's structural slowdown continues, India and a wider set of Asian economies are growing faster.

Emerging markets overall may still be growing at nearly 4.2% per year, but the strong performers within this group have changed significantly. The world economy's engines are rotating, but they are not all pulling in the same direction.

This redistribution of weight shows up most clearly in capital flows. Nonresident flows into emerging markets reached roughly $1.18 trillion in 2025 - well above historical averages. But this surge is not the start of a boom. Much of the strength reflected bank-related flows, official financing, and balance-sheet rebuilding in emerging Europe and parts of Asia. As these temporary drivers ease, flows are projected to moderate to about $1.13 trillion in 2026 - representing a normalization rather than a retreat.

Capital-flow ratios put this into perspective. Nonresident flows have amounted to about 2.6% of emerging-market GDP in 2025, but will fall to 2.3% in 2026. That is below pre-pandemic norms, but the headline distorts the underlying story, because inward flows to China have collapsed. Remove China, and you will find that all other emerging markets are absorbing capital at roughly the same pace as in the mid-2010s. The softness in the aggregate reflects China's weight, not a broad weakening of emerging-market fundamentals.