EM EMEA 2025 outlook
EHSAN KHOMAN
Head of Commodities, ESG and
Emerging Markets Research –
EMEA
DIFC Branch – Dubai
T:+971 (4)387 5033
E: ehsan.khoman@ae.mufg.jp
SOOJIN KIM
Research Analyst
DIFC Branch – Dubai
T: +44(4)387 5031
E: soojin.kim@ae.mufg.jp
LEE HARDMAN
Senior Currency Analyst
Global Markets Research
Global Markets Division for EMEA
T: +44(0)20 577 1968
E: lee.hardman@uk.mufg.jp
MUFG Bank, Ltd.
A member of MUFG, a global financial group
Macro focus
We wish all of our clients a happy, healthy and prosperous 2025. In the first EM EMEA Weekly of this year, we examine the EM EMEA 2025 outlook. We will be publishing our EM 2025 outlook shortly that will comprehensively cover our thoughts on the EM macro, FX and market strategy.
FX views
From an EM FX perspective, after a challenging summer in 2024, total returns for EM vs G9 FX have been grinding higher together with the USD since early October. Even as idiosyncratic EM noise has remained elevated, on net the average EM currency has depreciated by less than the average G9 currency since the US election. In a world where the US dollar is set to be stronger-for-longer, carry can be a key driver of relative performance – both within the EM FX complex and between EM and G9 currencies – and positive carry strategies that are USD-neutral can be resilient to tariff risk and yield positive total returns.
Week in review
The Central Bank of Egypt (CBE) kept its deposit rates on hold at 27.25%, in line with our expectations. Inflation in Turkey fell to 44.4% y/y in December from 47.1% y/y in November, slightly higher than our (51.5% y/y) and consensus (51.9% y/y) expectations. Inflation in Poland edged higher from 4.7% y/y in November to 4.8% y/y in December, in line with our forecasts but lower than consensus forecast of 4.9% y/y.
Week ahead
This week, there will be a MPC meeting in Israel (MUFG and consensus: on hold at 4.50%) and inflation in Egypt for December will be released (MUFG: -1.2ppts to 24.3% y/y).
Forecasts at a glance
The external backdrop for EM has shifted abruptly – the soft-landing pro-risk environment and pricing of non-recessionary Fed cuts has given way to concerns around tariff risks (and likely retaliatory action), higher-for-longer US rates and a strong US dollar. This sets the stage for a challenging EM backdrop in 2025. There are dimensions that could make Trump 2.0 less disruptive. Given the reduced direct trade exposure of the Chinese economy to the US and expectations that there will be a monetary and fiscal response by Chinese policymakers to offset the tariff growth shock, the economic and financial market disruptions will, on aggregate, be less severe than Trump 1.0.
Core indicators
The latest weekly IIF flow data signalled that EM securities witnessed inflows of USD14.8bn in the week ending 15 December. The breakdown suggests that equities drove the inflows (USD13.0bn) whilst debt (USD1.8bn) slightly increased.
