Emerging Markets 2025 outlook

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Navigating choppy waters

Trump 2.0 is clouding the EM outlook

EM macro dimensions in 2025

Agile EMs will prevail

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 the likelihood of 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.

Growth. We expect a rotation in growth with the largest EMs slowing (mostly due to policy tightening), but other (generally smaller) EMs that have endured painful adjustments rebounding in 2025.
Inflation. Inflation should continue to ebb in 2025, particularly where it has been highest – reflecting the effects of tighter policy and subdued commodity prices, among other factors.
Interest rates. We expect rate cuts across a wider swath of EM in 2025, although in many cases these will be limited in scope given persistent US dollar strength and tariff uncertainty.
Financial markets. Increasing concern around tariff risks, higher US rates and a strong US dollar have weighed on EM assets post-US elections – a harbinger of a more challenging backdrop next year where EM assets will need to stand on their own feet, relying on sturdy fundamentals and domestic policy support to deliver performance.
All in, choppy external headwinds in 2025 puts the onus on EMs to stand on their own feet. Those that rely on solid fundamentals and policy support to deliver performance, will lead.