Weakening capital flows are often the first shoe to drop in a balance of payments crisis. They directly cause growth to weaken because the investment and consumption they had been financing is reduced. This makes domestic borrowers seem less creditworthy, which makes foreigners less willing to lend and provide capital. So, the weakening is self-reinforcing. Growth slows relative to potential as the pace of capital inflows slows. Domestic capital outflows pick up a bit. Export earnings fall, due to falling prices or falling quantities sold. Typically exports are flat, no longer rising.
