Emerging Markets Key Themes 2025: Baseline looks fine but tariff risks severe

We are cautious on the macro outlook for emerging markets (EM) and adopt a defensive stance on EM assets. It may take until 2027 for supply side disruptions to dominate the outlook for EMs, but markets won’t wait that long. We anticipate they will react sharply to tariff announcements.

In this report, we address four key questions shaping the 2025 outlook for emerging markets:

• How will the Trump-fuelled boost impact emerging market activity? We project a moderate Trump-boost to EM GDP in 2025, driven by stronger US demand, weaker currencies and a slight bump in goods deliveries ahead of US tariff hikes. However, we have revised down our medium-term EM growth forecast as the negative side of Trump’s policies dominate.
• What are the potential consequences of US tariffs? So far markets haven’t distinguished sufficiently between the potential losers and non-losers from US tariffs. Our Trump scorecard, which considers risks across various categories, points to Mexico being the most vulnerable emerging market economy, followed by Colombia, Hungary and Brazil.
• What is the outlook for inflation, and will EM central banks remain hawkish? We project emerging market inflation will be back to rates last seen in 2010s, the most stable decade in history. It’s the last mouthful of inflation, however, that the hawks are struggling to devour. In the meantime, there are several economies that we have specific concerns about, including CEE, Brazil and Mexico.
• How have EM risk profiles evolved, and will this trend continue in 2025 amid tariffs and geopolitical tensions? Hungary, Pakistan, Egypt, Chile, South Africa, Turkey and Argentina have seen the biggest improvement over 2024. Dollar strength has hurt EM local currency assets, but the flipside is a sustained improvement in competitiveness and external imbalances. Disinflation has also helped. These gains will be sustained.

Download the full report to uncover our comprehensive analysis.