Emerging Markets Growth Predictions for 2025

Overview

Capital Economics predicts significant challenges for emerging markets in 2025, with expectations falling below consensus levels.

Key Insights

• US Trade Policy Impact: The firm notes that while US trade policies will mainly affect China and Mexico, most countries will face limited impacts overall.
• Currency Depreciation: Emerging Market currencies are expected to depreciate; however, robust EM balance sheets indicate a disorderly adjustment is unlikely.
• China's Economic Outlook: The Chinese government plans to further loosen policies to support short-term economic activity. Nevertheless, a slowdown is anticipated due to a tougher external environment and declines in property prices and construction.
• India's Performance: India is experiencing a slowdown after strong performance, likely underperforming in its local equities market compared to major benchmarks.
• Asian Economies: Weak growth and low inflation in other Asian markets suggest central banks will likely continue reducing interest rates soon.
• Emerging Europe: The outlook for Emerging Europe is pessimistic, with most economies expected to underperform, diverging from consensus, amidst higher inflation leading to rising interest rates.
• Latin America's GDP Growth: Weak GDP growth is expected due to tight policies and worsening trade conditions, particularly for Mexico.
• Fiscal Risks: Governments face challenges in meeting budget targets, potentially vulnerable local currencies.
• Middle East & North Africa: An uptick in GDP growth is forecasted for 2025-26, driven by increased energy output. Yet, stringent fiscal policies may suppress domestic demand despite lower interest rates.
• Sub-Saharan Africa's Recovery: GDP growth is projected to accelerate next year, driven by falling inflation and looser monetary policy, although tight fiscal measures will limit the recovery extent.

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