S&P Global — 13 December 2024
Daily Update: December 13, 2024
Trade Uncertainty Complicates the Outlook for Emerging Markets
By Nathan Hunt
Start every business day with our analyses of the most pressing developments affecting markets today, alongside a curated selection of our latest and most important insights on the global economy
Protectionist policies from the world’s largest economies are rarely good news for emerging markets. It seems unlikely that most emerging economies will be hit with additional tariffs in the short term. Tit-for-tat tariffs between the US and China will have the greatest impact on those two economies. But any form of economic slowdown in China or the US will have an outsized impact on emerging markets that depend on them as export markets. When the US or China sneezes, Latin America and Southeast Asia get a cold.
According to economists at S&P Global Ratings, reciprocating tariffs of approximately 25% between the US and China would create slightly lower growth in China and potentially some inflationary pressure in the US. The strength of the domestic market in the US insulates it somewhat from tariffs, while the Chinese economy is more responsive to global demand.
Southeast Asian economies, which have more linkages to China, will see a variety of impacts from a more protectionist trade environment. Chinese manufacturers will be looking for alternative markets for their goods, which could create challenges for manufacturers in other countries that will struggle to compete with the price-competitiveness of Chinese goods. Lower Chinese demand will also impact emerging markets in Southeast Asia.
However, shifting supply chains may prove advantageous if these countries are able to sell into the US without trade restrictions. In that case, attracting foreign direct investment would be another advantage. For that reason, S&P Global Ratings has revised outlooks upward for Vietnam and Malaysia. Indonesia, Thailand and the Philippines have unchanged forecasts. India will continue to experience enviably strong growth in these revised outlooks.
Emerging markets in Latin America show mixed projections. S&P Global Ratings’ forecast for Mexico has been revised down on concerns over protectionist rhetoric from the US. Meanwhile, projections for Argentina, Brazil and Peru have been revised upward due to strong domestic demand in Brazil and Peru and inflation stabilizing in Argentina. Economic outlooks for Colombia and Chile are unchanged, with both economies enjoying modest growth.
The European emerging markets of Poland and Hungary will experience slightly lower growth than previous projections, due in part to lower projections across the eurozone. The economic forecast for Turkey is unchanged for 2024, while the forecast for Saudi Arabia is down slightly due to softness in oil demand.
Credit conditions in emerging markets will benefit from continued monetary easing, taking some of the pressure off borrowers. But in a protectionist environment, the balance of risks has clearly worsened for emerging markets.
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