Executive Summary: Emerging Markets Outlook [2026]

  • Global Growth Trends: Emerging markets will grow 4.1% in 2025, versus 1.5% for advanced economies, maintaining a clear growth premium. Global growth is revised down to 2.3% in 2025, the slowest since 2008 outside recessions.
  • Regional Performance + Country Opportunities & Risks: India sustains 6.4-6.7% growth, supported by reforms and consumption. China moderates to 4.8% in 2025, constrained by weak domestic demand. Africa accelerates toward 4.3% by 2027, led by East Africa 5.9%. MENA grows at 2.6%, shaped by oil policies and regional instability.
  • Structural Shifts: Expanding working-age populations in Africa and South Asia drive long-term labor and consumer opportunities. Mobile-first economies increase financial inclusion, with 40% of adults saving through institutions. Mexico and Vietnam benefit from near-shoring and friend-shoring trends. India added 21.9 GW of renewable capacity in H1 2025, up 56% year-on-year.
  • Market & Investment Outlook: Equity markets equities up 15.6% in 2025, outperforming the S&P 500’s 6.2%. Debt delivered strong returns (13.8% local currency), supported by capital inflows of USD 44.8 billion in August. Valuations remain attractive, with EM forward P/E at 13.15, below US levels.
  • Key Risks Ahead: Effective tariff rates hit 27%, the highest since 1903. Shipping reroutes raise costs; Suez traffic dropped 50% in early 2025. Global debt surpasses USD 100 trillion, with refinancing risks peaking in 2025-27. Extreme weather could push 26 million people into poverty annually.
  • Strategic Priorities for Business Leaders: Allocate to high-growth hubs like India, ASEAN, and East Africa. Leverage youth demographics and digital adoption for consumer-led growth. Diversify supply chains to Mexico and Vietnam. Invest in green and digital infrastructure to align with reforms. Stay agile with local insights through hedging and active allocation.

 

 

Frequently Asked Questions (FAQs)

Are emerging markets a good investment now?

The emerging markets offer attractive investment potential. The MSCI Emerging Markets Index in 2025 has risen 13.4% year-to-date, compared to 6.2% for developed markets. This growth reflects a weaker US dollar, stable macroeconomic conditions, and ongoing structural reforms.

What is the outlook for emerging markets in 2030?

Emerging markets are expected to drive 65% of global economic growth by 2035. Their average GDP growth may reach 4.06% during this period.

India is on track to become the world’s third-largest economy. In addition, emerging markets’ share of global equity market capitalization is projected to increase from 27% in 2023 to 35% by 2030.

Quick Overview

The International Monetary Fund (IMF) projects emerging markets to grow by 3.9% in 2026, outpacing advanced economies, which are expected to expand by just 1.4%.

Despite ongoing trade tensions, tariff pressures, and recession risks, emerging markets continue to show resilience. Strong domestic demand, expanding digital adoption, and shifting supply chains support this momentum.

This divergence highlights where business leaders and investors should focus – on identifying growth hubs, managing risk exposure, and aligning strategies with evolving market dynamics.

Market Growth Projections

The IMF’s World Economic Outlook Update, July 2025, forecasts global growth of 3.0% for this year. Further, it expects a modest increase to 3.1% in 2026.

 

 

Emerging market and developing economies are projected to grow by 4.1% in 2025, with a slight dip to 4.0% in 2026. In contrast, advanced economies are expected to expand more slowly, with many forecast to remain near or below 1.5% during the same period.

Inflation & Policy Shifts

The global headline inflation is expected to ease to 4.2% in 2025 and 3.5% in 2026. However, the World Bank’s June 2025 report revised global growth downward to 2.3% for 2025. This would mark the slowest pace since 2008, excluding periods of recession.

Trade & Supply Chains

Trade pressures continue to mount. Researchers at Yale University’s Budget Lab estimate that consumers face an average effective tariff rate of 27%. It is the highest since 1903. The IMF’s April 2025 World Economic Outlook also flagged these “effective tariff rates at levels not seen in a century”

Meanwhile, Mexico has strengthened its trade position with the United States. It became the largest source of US goods imports in 2023. By 2024, Mexico accounted for 15.5% of US imports. Further, the combined trade between the two countries reached USD 840 billion, with Mexico serving as both the top supplier of imports and the leading destination for US exports.

Regional Performance Driving Divergent Outcomes

1. Asia: Steady Growth with Signs of Moderation

South Asia remains the fastest-growing region globally. The World Bank’s June 2025 report projects regional growth at 5.8% in 2025, rising to 6.2% by 2027. The strong demand from India and easing inflation in select countries are supporting this outlook.

India is expected to grow at 6.7% annually for fiscal years starting April 2025. Several organizations have raised their forecasts, with the IMF projecting 6.4% growth for both 2025 and 2026.

In contrast, East Asia and the Pacific show signs of slowing. The growth is projected to moderate to 4.5% in 2025 and ease toward 4.0% by 2027. Weaker export demand and ongoing supply chain disruptions are contributing to this trend.

2. Latin America & the Caribbean (LAC): Facing Constraints, Limited Upside

The Latin America and Caribbean region is forecast to grow by 2.3% in 2025, gradually rising to 2.6% in 2027. Investment bottlenecks, trade challenges, and low productivity continue to weigh on performance.

Mexico, a key regional economy, is projected to see modest improvement. The IMF expects growth to increase from 0.2% in 2025 to 1.1% in 2026, which reflects the region’s uneven recovery.

3. Africa & Sub-Regions: Gradual Gains with Varied Conditions

Sub-Saharan Africa is expected to grow by 3.7% in 2025 and reach 4.3% in 2027. It benefits from easing inflation, currency stabilization, and rising consumption in more stable economies. The World Bank notes this marks an improvement from 3.3% in 2024.

In the Middle East and North Africa (MENA), growth is forecast at 2.7% in 2025. Risks include regional conflicts, oil production cuts, and policy uncertainty. Oil exporters may benefit from reversing production cuts, while importers could gain from lower inflation.

4. Europe & Central Asia: Slower Pace, Modest Recovery

Europe and Central Asia are projected to grow by 2.4% in 2025, with a slight increase to 2.7% in 2027. The growth remains below pre-pandemic levels. The region faces challenges from shifting trade patterns, energy price volatility, and global economic spillovers.

Country Opportunities and Risks to Watch

1. China

The IMF raised China’s 2025 growth forecast to 4.8% and set 2026 at 4.2%. Policymakers continue to focus on targeted measures rather than broad stimulus.

 

 

China’s economy grew at an annualized rate of 6.0% in Q1 2025, which is driven by export gains. A weaker yuan and increased sales to non-US markets are supporting this growth. The Q1 performance alone added 0.6 percentage points to the annual forecast. However, domestic demand remains subdued, which may limit sustained momentum.

“This revision reflects stronger-than-expected activity in the first half of 2025 and the significant reduction in US-China tariffs,” the IMF said. The IMF noted that its revised forecast assumes a US effective tariff rate of 17.3%, down from the 24.4% used in earlier projections.

2. India

The IMF projects India’s growth at 6.4% for both 2025 and 2026, supported by strong domestic demand and investment activity. On a fiscal year basis (April-March), growth is expected to reach 6.7% in FY2025 and 6.4% in FY2026.

These upgrades, 0.2 percentage points for 2025 and 0.1 for 2026, reflect a more favorable external environment. The IMF credits India’s performance to ongoing reforms, steady consumption growth, and continued public investment.

Key policy areas include job creation, labor market flexibility, infrastructure development, and easing trade restrictions.

3. Association of Southeast Asian Nations (ASEAN)

The World Bank expects East Asia and the Pacific’s growth to slow to 4.0% in 2025. Within this, ASEAN-5 growth has been revised downward from 4.6% to 4.1%. It is a reflection of weaker external demand and rising trade tensions.

 

Source: Krungsri

 

Country-specific projections:

  • Indonesia: Growth is projected at 4.7% in 2025, rising to 5.1% in 2026.
  • Philippines: Growth is expected at 5.3% in 2025, accelerating to 6.1% in 2026.

The region faces pressure from US transshipment tariffs aimed at limiting Chinese influence. At the same time, supply chain diversification continues to attract foreign direct investment. However, the Thailand-Cambodia border conflict has emerged as a new risk, potentially affecting regional economic ties.

4. Latin America

The growth in Latin America and the Caribbean is forecast at 2.3% in 2025, firming slightly to 2.4% in 2026-27. Mexico is expected to improve modestly, with growth rising from 1.0% in 2025 to 1.5% in 2026.

The IMF’s September 2025 update reflects this improvement, revising Mexico’s 2025 forecast upward from earlier contraction estimates. CEPAL projects similar regional growth at 2.2% for 2025. It highlights nearshoring as a key opportunity, especially for Mexico.

Despite these gains, policy uncertainty and limited fiscal space continue to pose challenges for sustained growth across the region.

5. Africa

Sub-Saharan Africa is projected to grow by 3.7% in 2025, with an average increase to 4.2% across 2026-2027. East Africa leads the region, with expected growth of 5.9%. It is supported by economic resilience in Ethiopia, Rwanda, and Tanzania.

West Africa maintains a 4.3% growth outlook, driven by new oil and gas production in Senegal and Niger. In contrast, Central Africa is expected to slow to 3.2%, while Southern Africa may grow by just 2.2%. South Africa, the region’s largest economy, is forecast to expand by only 0.8%.

In an interview with CNN’s Christiane Amanpour, Dr. Adesina noted that 47 of Africa’s 54 countries will feel the impact of new US trade policies. These changes may reduce export revenues and foreign exchange reserves.

Despite these challenges, 21 African countries are expected to grow above 5% in 2025. Ethiopia, Niger, Rwanda, and Senegal may exceed 7% growth. The African Development Bank highlights that although the US accounts for just 5% of Africa’s global trade, falling commodity prices and declining asset values have already affected the continent due to global tariff uncertainty.

6. Middle East

The growth in the Middle East and North Africa (MENA) region is projected at 2.6% in 2025. Conflict and trade restrictions continue to create uncertainty.

Further, the Gulf Cooperation Council (GCC) is expected to grow by 4.1% in 2025 and accelerate to 4.6% in 2026. This pace exceeds the broader MENA average. The recovery is supported by early reversal of OPEC+ production cuts, with plans to restore 2.5 million barrels per day by October 2025. Saudi Arabia and the UAE, which hold most spare capacity, benefit the most.

Oil sector growth is forecast at 4.9% in 2025 and 6.0% in 2026. Besides, non-oil sectors are expected to expand by 4.0%.

The UAE’s economy is projected to grow by 4.9% in 2025, up from a previous estimate of 4.4%. Higher oil output and steady growth in non-hydrocarbon industries support this revision. The hydrocarbon sector is expected to grow by 5.8% in 2025 and reach 6.5% in 2026.

Structural Shifts Reshaping Emerging Markets

1. Growing Young Population: The Demographic Dividend Opportunity

UN population projections show that working-age shares will rise in 100 countries through the 2030s. Many nations in Africa and South/Southeast Asia benefit from favorable dependency ratios. These trends expand labor supply and increase consumption, especially as median ages remain low compared to advanced economies.

Sub-Saharan Africa’s working-age population is expected to more than triple by 2050. It remains the only major region with a growing labor base. The continent will need to generate 2 million jobs per month by 2040 to match this growth.

 

Source: VisonIAS

 

Moreover, India’s youth make up 65% of its population under age 35. The demographic dividend may peak around 2041, when the working-age group is projected to reach 59% of the total population.

2. Rapid Digital Adoption: Mobile-First Financial Revolution

Digital transformation continues to reshape emerging markets. As of Q2 2025, mobile devices account for 62.54% of global website traffic. Many countries have bypassed desktop internet altogether.

India leads with a mobile-first online population. Nigeria, Ghana, and Kenya also show high mobile internet usage. In most African markets, mobile accounts for more than half of web traffic.

Financial inclusion is expanding alongside mobile adoption. The World Bank’s Global Findex 2025 report shows that 40% of adults in developing economies save through financial institutions. This marks a 16-point increase since 2021.

 

Source: Statista

 

Mobile-money services play a key role. In 2025, 10% of adults in developing economies use mobile accounts to save, up from 5% in 2022.

3. Structural Reorientation of Supply Chains: The New Geography of Production

Reshoring continues to reshape global trade. Mexico’s exports to the United States reached USD 505.5 billion in 2024, a 6.9% increase from 2023. Total US-Mexico trade climbed to USD 839.6 billion, with Mexico remaining the top US trading partner.

Vietnam is gaining traction as an alternative manufacturing hub, especially in electronics. Companies such as Samsung, Foxconn, and Intel have expanded operations there. Besides, Apple relocated 11 audio-visual device plants to Vietnam.

Friend-shoring trends reflect geopolitical preferences. Trade flows increasingly favor countries with aligned political positions, which is influencing supply chain decisions.

4. Sustainability and Reform: Clean Energy Transformation

Emerging markets are expanding clean energy capacity. India added 21.9 GW of solar and wind power in the first half of 2025, a 56% increase from the previous year. Solar installations rose by 51.6%, while wind capacity grew by 82%.

 

Source: JMK Research

 

Policy reforms are also reshaping energy markets. South Africa’s Electricity Regulation Amendment Act, effective January 1, 2025, introduces major changes to its power sector. The Act establishes the Transmission System Operator SOC Limited (TSO), which will manage transmission, system operations, market coordination, and central purchasing.

This legislation opens the electricity market to competition. It marks a shift away from Eskom’s long-standing vertically integrated structure and allows multiple participants to trade power more freely.

 

 

Market and Investment Outlook

The IMF projects that emerging markets will maintain a growth premium of 2.6 percentage points over advanced economies. Growth is expected at 4.1% in 2025 and 4.0% in 2026. This advantage, along with moderating inflation, easing financial conditions, and continued supply-chain diversification, supports a favorable environment for emerging market assets.

1. Equity Markets

Valuation Trends

As of August 29, 2025, the MSCI Emerging Markets Index shows a trailing P/E of 15.41, a forward P/E of 13.15, and a price-to-book value of 1.99. These figures remain below U.S. benchmarks and offer room for re-rating if earnings growth continues.

Performance Trends

Emerging market equities have gained momentum in 2025. The MSCI Emerging Markets Index rose by 15.6% in the first half of the year, outperforming the S&P 500’s 6.2% increase.

 

 

South Korea led the region, with the MSCI Korea Index returning over 45%, supported by margin expansion and policy reforms.

Currency Dynamics

The weakening U.S. dollar has boosted emerging market performance. Historically, EM equities rise by about 4% for every 1% drop in the dollar. Through July 2025, the DXY index declined by 9%, helping strengthen EM currencies and improve dollar-based returns.

2. Bond Markets

Local-currency emerging market debt (JPM GBI-EM GD) returned 13.8% through August 2025. Currency appreciation contributed 6.2%, while bond performance added 7.2%.

Hard-currency sovereign bonds (JPM EMBI GD) returned 8.7% during the same period, with 4.7% from the Treasury component and 3.8% from spread compression and carry.

As of March 2025, EM sovereign bonds offer a yield of 7.78% with a duration of 6.6 years. EM corporate bonds yield 6.77% with a shorter duration of 4.2 years and provide diversification across maturity profiles.

3. Asset Flows & Positioning

August 2025 saw USD 44.8 billion flow into emerging market portfolios. Of this, USD 16.3 billion went into equities and USD 39.2 billion into debt. This followed July’s strong inflows of USD 55.5 billion, marking the second-highest monthly total in four years.

Chinese assets led the inflows, which attracted over USD 39 billion across debt and equity markets.

India diverged from this trend. Foreign Portfolio Investors (FPIs) withdrew INR 7945 crore from Indian equities in September 2025. This followed outflows of INR 34 990 crore in August and INR 17 700 crore in July. Total net equity outflows reached INR 1.38 lakh crore in 2025, reflecting profit-taking amid strong performance and high valuations.

All major regions reported higher inflows in August compared to July. Asia gained USD 18.1 billion, Latin America USD 8.9 billion, Emerging Europe USD 8.7 billion, and the Middle East and North Africa USD 5.8 billion. This broad-based increase suggests investor confidence is expanding across emerging markets rather than concentrating in select areas.

4. Sector and Theme Plays

ASEAN Digital Economy Expansion

Southeast Asia’s digital economy continues to grow. According to the Google-Temasek-Bain e-Conomy SEA program, the region reached USD 263 billion in gross merchandise value (GMV) in 2024, marking a 15% increase from the previous year.

Digital economy revenues rose 14% to USD 89 billion, while profitability climbed to USD 11 billion, up from USD 4 billion in 2022.

Africa Fintech Growth Outlook

African fintech shows strong potential for expansion. Boston Consulting Group and QED Investors estimate revenues could reach USD 65 billion by 2030, reflecting a 13-fold increase from 2021 and a compound annual growth rate of 32%.

McKinsey projects a more moderate path, with revenues reaching USD 47 billion by 2028, up from USD 10 billion in 2023.

Supply Chain Shifts and Beneficiaries

Mexico continues to lead as the top source of US goods imports, holding a 15.5% market share in 2024. Total trade between the two countries exceeded USD 840 billion.

Meanwhile, Vietnam strengthens its role in electronics manufacturing as major technology firms complete the relocation of production facilities.

Key Risks Emerging Markets Should Act Against

1. Trade Fragmentation and Tariff Shocks

The World Bank’s June 2025 Global Economic Prospects report projects global growth to slow to 2.3% in 2025. This marks a downward revision of 0.4 percentage points from earlier expectations. Nearly 70% of economies face reduced growth forecasts.

Global trade is also losing momentum. It is expected to grow by only 1.8% in 2025, down from 3.4% in 2024. This figure represents about one-third of the 5.9% average seen in the 2000s.

2. Geopolitical Tensions and Shipping Disruptions

UNCTAD’s 2025 Review of Maritime Transport highlights growing pressure on global shipping. Seaborne trade volumes are forecast to rise by just 0.5% in 2025. It reflects the slowest pace in recent years.

Geopolitical tensions have led to longer shipping routes. Ton-miles grew by 6%, even as overall volumes remained flat. The Red Sea crisis has reshaped global maritime flows. Trade through the Suez Canal dropped by 50% year-over-year in the first two months of 2025.

 

 

In contrast, traffic around the Cape of Good Hope surged by 74% compared to last year. Meanwhile, Panama Canal transit volumes declined by nearly 32% from the prior year.

3. Dollar Strength and Capital-Flow Reversals

The US dollar remains a key risk for emerging markets. Although 2025 began with the dollar’s weakest performance since 1973, past periods of dollar strength have strained EM balance sheets and disrupted capital flows.

By May 2025, EM currency volatility, measured by the MSCI EM Currency Index, reached multi-decade lows. This stability reflects stronger macro fundamentals and higher foreign-currency reserves.

According to the Institute of International Finance, USD 44.8 billion entered EM portfolios in August 2025. Debt attracted USD 41.5 billion, while equities drew USD 3.3 billion.

However, flows varied by region. Indian equities saw INR 7945 crore in outflows during September, continuing a trend despite broader EM inflows.

4. Debt and Refinancing Risks

The OECD’s Global Debt Report 2025 projects global debt will surpass USD 100 trillion this year. A large concentration of maturities between 2025 and 2027 poses refinancing challenges for both sovereign and corporate borrowers.

The World Bank’s Chief Economist notes that nearly half of 150 developing and emerging economies either struggle to meet debt service obligations or face rising risk. This figure has doubled since 2019 and may worsen if global growth slows.

Despite these pressures, EM corporate credit quality shows signs of improvement. By the end of April 2025, the number of issuers rated CCC+ or lower fell to 9, down from 15 in January. EM firms also report lower net leverage and stronger interest coverage, which supports more stable debt profiles.

5. Commodity Volatility

The Strait of Hormuz remains a key pressure point in global energy trade. Around 20% of global oil and LNG shipments pass through this narrow route. Any disruption here affects energy supply chains worldwide.

 

 

India illustrates the exposure of emerging markets to this risk. The country imports over 85% of its crude oil, totaling approximately 5.5 million barrels per day.

More than one-third of its energy supply moves through the Strait, increasing vulnerability to geopolitical or logistical disruptions.

6. Climate Shocks and Extreme Weather

Climate-related disasters pose growing risks to economic stability. The World Bank highlights these events as significant threats to infrastructure and agriculture, especially in emerging markets.

Each year, extreme weather pushes an estimated 26 million people into poverty. If current trends continue, up to 130 million people could face poverty by 2030 due to climate shocks.

Strategic Priorities for Business Leaders in 2026

1. Allocate to Growth Markets

Emerging markets are expected to grow nearly three times faster than advanced economies in 2026. India, ASEAN members, and reform-focused Latin American economies show strong potential. India’s FY26 growth is projected at 6.2%, even after a slight downward revision due to global volatility.

These regions benefit from steady domestic demand, expanding middle classes, and structural reforms that encourage investment and support consumption. Businesses should consider reallocating resources to tap into these growth hubs.

2. Leverage Demographic Trends

By 2030, emerging markets will drive nearly all global population growth. Median ages in these regions remain lower than in advanced economies, which creates a younger and more active consumer base.

In Africa (median age: 19.7), India (26.8), and Latin America (31), over 75% of consumers will be under age 35. This shift supports a digitally engaged and aspirational middle class. UN projections confirm that 97% of global population growth by 2030 will come from emerging and developing countries.

These demographic patterns offer long-term opportunities for businesses focused on youth-driven demand and digital engagement.

3. Build Supply Chain Flexibility

Mexico has become the leading supplier of goods to the United States. In 2024, its exports reached USD 503.26 billion and exceeded USD 313 billion in the first half of 2025. Mexico accounts for 16.2% of total US goods trade, with vehicles, electronics, and machinery driving the volume.

At the same time, Vietnam’s exports to the US surpassed USD 85 billion in H1 2025. Electronics, textiles, and footwear continue to dominate its trade surplus.

Both countries serve as key supply chain hubs for companies to reduce exposure to tariffs and disruptions. Near-shoring and friend-shoring trends further support this shift.

4. Invest in Green and Digital Infrastructure

India’s renewable energy output rose 24.4% year-on-year in H1 2025. New solar and wind installations, along with battery storage project awards, reached record levels. Over 50% of India’s total power capacity comes from non-fossil sources. Continued policy support and investment in grid upgrades and AI-driven management reinforce this progress.

In 2025, South Africa opened its electricity grid to private trading. This move ended Eskom’s monopoly and encouraged private investment in clean energy and grid modernization.

Investment opportunities in emerging markets extend beyond traditional sectors. Fintech, logistics, digital infrastructure, smart grids, and AI-enabled services are gaining traction as governments align policy with long-term sustainability goals and evolving consumer demand.

5. Stay Agile with Local Insights

Emerging market volatility continues to pose risks. In July 2025, the Institute of International Finance reported USD 55.5 billion in inflows to EM stock and bond portfolios. This marked one of the largest monthly totals in recent years.

However, trends vary by market. India, for instance, experienced foreign portfolio investment outflows in September, despite broader EM inflows. This divergence underscores the importance of localized intelligence, currency hedging, and active allocation strategies.

To manage risk effectively, investors should adjust exposure based on market-specific conditions rather than rely solely on passive approaches.

Explore the Emerging Markets & Innovations to Stay Ahead

Emerging markets in 2026 present a varied landscape of growth centers, reform efforts, and areas of volatility. Data continues to show a consistent growth premium over advanced economies, driven by favorable demographics, rising digital adoption, and evolving supply chains.

However, risks such as tariff shocks, debt pressures, and policy uncertainty remain and require careful attention. Business leaders must balance opportunity with discipline.

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