S&P Global on Q2’25 emerging markets outlook

The direct impact of tariffs will be modest in most emerging markets outside of Asia and Mexico. But, if tariffs lead to slower growth in the U.S., other major advanced economies, and China, the knock-on effects on most emerging markets could be substantial. S&P Global's Q2 Emerging Markets Economic Outlook Report, as discussed by Chief Economist Elijah Oliveros-Rosen, highlights the potential challenges facing emerging markets in the midst of ongoing trade tensions. Oliveros-Rosen points out that the recent escalation in tariffs has added an extra layer of uncertainty to the global economic landscape, with the U.S. effective tariff on goods still standing between 25% and 30%. The report identifies Asia, including China, Vietnam, Thailand, and Malaysia, as well as Mexico, as the most vulnerable to the direct and indirect impacts of tariffs. Despite the fluid situation, the relative impact on emerging markets remains consistent as further announcements are awaited. The ongoing trade tensions between the U.S. and China are seen as the primary driver of uncertainty, with the potential for a complete breakdown of the trade relationship looming. S&P Global's growth projections for emerging markets are subject to change as developments unfold, with direct and indirect impacts estimated to lower GDP by varying degrees across nations. The uncertainty surrounding trade policy and the duration of the 90-day tariff pause present challenges for forecasting long-term growth trends. Monetary policy plays a crucial role in mitigating the economic repercussions of trade tensions, with the Fed expected to make only one rate cut this year. However, elevated U.S. borrowing costs could limit the flexibility of emerging markets in adjusting their own monetary policies. The recent shift of capital out of the U.S. towards Europe and China has resulted in a weakening U.S. dollar, impacting long-term yields in emerging markets and increasing the cost of borrowing. This trend poses challenges for fiscal sustainability and could hinder growth prospects in emerging markets. Despite the uncertainties and risks posed by the current trade environment, there is optimism that countries will seek to lower tariffs and negotiate deals that benefit global trade in the long term. As the dynamics between major economies continue to evolve, emerging markets will need to navigate the complexities of trade policy and monetary decisions to ensure stability and growth in the face of ongoing challenges.