Emerging Markets Face Growth Challenges in 2025, According to Capital Economics
Capital Economics anticipates strong challenges in growth for emerging markets in 2025, predicting that expectations will remain below consensus. The firm forecasts that U.S. trade policy will primarily impact China and Mexico, but the overall effect on most countries will be limited. Emerging Market currencies are expected to depreciate in 2025, although it is noted that an erratic adjustment seems unlikely due to strong emerging market balance sheets.
In China, the government has indicated that policies will be further loosened to support economic activity in the short term. Nevertheless, the firm projects a slowdown in China's growth next year due to a tougher external environment and the ongoing decline in real estate prices and construction.
On the other hand, India is experiencing a slowdown after a period of strong economic performance. The report suggests that the Indian economy will underperform compared to other key benchmarks in the local stock market.
For other Asian economies, the firm predicts that central banks in the region are likely to continue lowering interest rates in the coming months due to persistently weak growth and low inflation.
The outlook for Emerging Europe is not optimistic; the firm expects that most economies in the region will experience disappointing growth in 2025, deviating from consensus. However, unexpectedly high inflation could lead to interest rates being higher than many anticipate by year-end.
In Latin America, the firm forecasts weak GDP growth due to tight policies, worsening trade terms, and the impact of U.S. trade protectionism, particularly for Mexico. Financial risks are also highlighted, with governments struggling to meet budget targets, which may leave local currencies vulnerable.
Finally, it is anticipated that the Middle East and North Africa region will see an increase in GDP growth in 2025-26, supported by rising energy production. However, the positive effects of low interest rates are expected to be offset by tight fiscal policy, which will likely suppress domestic demand.
Meanwhile, Sub-Saharan Africa is projected to experience a pickup in GDP growth from the beginning of next year due to falling inflation and looser monetary policy, although tight fiscal policy will limit the extent of the recovery.