Contrary to what was feared at the end of 2024-beginning of 2025, exports of goods of emerging countries held up well in the first part of the year. Asian countries are showing the best performances and Latin American countries are doing well. On the other hand, Central European countries appear, if not as the losers, at least as the most vulnerable to the transformations of global trade since the Covid crisis. For a large majority of EM, corporates’ expectations about their order books in June suggest a decline or slowdown in exports in the coming months.
The tightening of US trade policy presents Brazil with numerous challenges and pressure points through its effect on economic growth, commodity prices, the need to defend its export market shares and heightened competitive pressure within its borders stemming from the rerouting of inexpensive goods. However, this new environment also presents Brazil with opportunities to reposition itself in the global trade landscape enabling it to take advantage of the reconfiguration of trade flows and global value chains. This shifting geography could also act as a catalyst to accelerate its trade integration (Mercosur, EU, Canada, Mexico). In the short term, however, the most pressing challenges will be domestic
The outlook continues to deteriorate in Mexico, one of the countries most exposed to US economic policy. The Mexican economy is set to contract in the coming quarters, with weak domestic demand unable to offset the marked slowdown in exports. Mexico's Minister of the Economy has begun talks with Washington on a faster-than-expected renegotiation of the USMCA free-trade agreement. The aim is to reduce the short-term uncertainty surrounding bilateral relations between the two countries.
GDP growth is holding up rather well in Chile, buoyed by the mining sector and a solid domestic demand. The outlook is relatively favourable: inflation is contained, fiscal consolidation should continue and political risk remains moderate in the run-up to the presidential election at the end of the year. Lastly, apart from the announcements regarding the copper sector, the direct impact of the increase in tariffs imposed by the Trump administration on the Chilean economy is relatively low. Indirect effects, volatile commodity prices and uncertainties over the pace of progress in the global low-carbon transition, on the other hand, represent a very significant risk for the Chilean economy.
The vast majority of Latin American countries have been subject to 10% tariffs, the minimum rate, since April 2, imposed by the Trump administration. This leniency is due to the composition of their exports (raw materials and energy, whereas the Trump administration's “reciprocal” tariffs mainly targeted exporters of manufactured goods) and the fact that most of them have a trade deficit with the US.
The economy ended 2024 in a state of overheating (reacceleration of inflation, tensions in the labour market) – a situation fueled, in large part, by the prolonged extension of public support measures. Throughout the year, the fiscal trajectory has steadily undermined market confidence – eventually culminating in significant capital outflows in December. The resulting pressures on equities, interest rates and the exchange rate, prompted the Central Bank to take defensive measures to stabilize the BRL. In 2025, a gradual slowdown in economic activity appears inevitable, as domestic demand will be constrained by fiscal adjustment measures, tighter credit conditions, persistent inflation and a deteriorating business climate
The Mexican economy is slowing down and the short-term outlook is not favourable. The constitutional reforms enacted in recent months (including the reform of the judicial system) are damaging the institutional framework and deterring investment. In addition, consumption could be hit hard by the fiscal consolidation plan announced by the government. Above all, Mexico is one of the most vulnerable countries to the US economic policy change. The new migration measures could significantly reduce money transfers from foreign workers, which significantly support the country's growth. The expected customs tariffs applied would also have severe consequences for the Mexican economy in terms of growth and inflation.
Argentina's economy is back on track. Since mid-2024, growth has returned and inflation has slowed significantly. There has been a high social cost to the severe cuts in public spending, but the government budget is in surplus for the first time since 2010. With the recessionary impact of fiscal austerity, the current account balance has turned into a surplus as well. But exports have also been rebounded , despite low prices of agricultural commodities. For the time being, the central bank's foreign exchange reserves are still insufficient for exchange controls to be lifted before the mid-term elections in October. The renewal of an agreement with the IMF is already a prerequisite
Brazil's macro-financial portrait is one of striking contrasts: on the one hand, unemployment is at an all-time low, external accounts exhibit a notable resilience, and economic growth continues to outperform expectations as it draws on multiple levers ; On the other hand, the currency has continued to weaken, residents have increased their holdings abroad, and risk premiums have widened – as defiant markets call for additional measures to curb public spending. The Central Bank – bucking the global trend – has initiated a phase of monetary tightening in response to rising inflation. The latter has witnessed upward pressures on both the supply and demand side in recent months
In Chile, the recovery in economic activity seen in 2024 is expected to continue in 2025. Commodity exports will remain strong, while private consumption will benefit from slowing inflation and a gradually improving labour market. Against a political backdrop marked by ongoing tensions, and an opposition coalition strengthened by the results of recent local elections, the government is trying to press ahead with its flagship reforms, relating to the energy sector in particular, before the end of its term, which will be in late 2025. Against this backdrop, public finances are still being gradually consolidated, at a slower pace than initially anticipated.
The election of Donald Trump as President of the United States has raised fears that protectionist measures will be stepped up. Customs duties would be applied to all products from all of the United States' trading partners. In addition to China, the main country targeted, concerns about the macroeconomic and financial consequences of such a policy have risen sharply in Mexico.
Growth in emerging markets held up fairly well until the spring of 2024, partly thanks to the easing of monetary policies since mid-2023. The imminent one in the United States should make it possible to extend or even strengthen it. In the most likely scenario of a soft landing of the US economy, the main risk for emerging economies is a sharper-than-expected slowdown in the Chinese economy. The slump in the real estate sector is spreading through the fall in commodity prices. On the one hand, most emerging countries will gain in disinflation. But, on the other hand, commodity-exporting countries of which China is the main customer will suffer. Above all, the risk of contagion lies in the implications of the Chinese authorities' strategy of supporting growth through foreign trade
The messages sent out by the Brazilian financial markets and those of the real economy have become increasingly incongruent. Robust economic growth, low unemployment and relatively subdued inflation have become steadily overshadowed by rising political and fiscal risks, which have weighed more heavily on the currency, equity prices and the yield curve. Lula's parliamentary setbacks, his frictions with the Central Bank and increased interventionism have rattled investors already shaken by major revisions to global and local interest rate projections. The challenge for the second half of the year will be to bolster economic agents’ confidence in an effort to stabilise expectations.
Claudia Sheinbaum was elected President of Mexico on 2 June. The political and economic challenges she will face during her mandate are numerous, and mainly concern the sustainability of public finances, the reform of the energy sector (a particularly sensitive point in Mexico, especially in the context of nearshoring and renewed appeal to foreign investors) and the renegotiation of the trade treaty with Canada and the United States (UMSCA) in 2026. In the short term, as a member of the Morena party of the former outgoing President, the new President needs to find the appropriate distance from Andres Manuel Lopes Obrador and his supporters. Discussions relate in particular to the reform of the justice system that AMLO himself had proposed.
The Ley Bases (a set of measures designed to liberalise the economy and, more generally, society) presented by Javier Milei after his inauguration last December was finally adopted at the end of June. As the President's party has no majority in either the Chamber of Deputies or the Senate, the final version was watered down. However, it is a victory for Milei, who is racing against time between an economy sinking into deep recession and the first signs of disinflation. For the government, the fight against inflation justifies the drastic cuts in public spending and the maintenance of a strategy of real exchange rate appreciation
Energy and mineral commodities are central to the low carbon transition process. Latin America, which boasts abundant amounts of minerals and key metals for the transition, and GCC[1] countries, which are dependent on revenue from hydrocarbons, are seemingly, on the face of it, taking contrasting paths on the transition journey. However, the macroeconomic consequences cannot easily be determined currently. Gulf countries have some advantages in the oil market, but the pace of the transition could affect revenues more quickly than expected. In Latin America, while the size of critical minerals reserves is brightening the outlook, various national strategies and numerous constraints could curb the scale
After stagnating in the second half of 2023, economic activity has strengthened in recent months, supported by a surprisingly resilient labor market, amongst other. This good start to the year was however not overtly obvious given the divergence of many indicators. The pace of rate cuts is expected to slow down in the second half of 2024. Monetary easing is indeed coming up against slower-than-expected disinflation and upside risks to inflation expectations. The latter have been dented by the revision of the budgetary targets for 2025-28 and a more pronounced interventionism by the State, anxious to revive investment
Chile’s economic growth stabilised during the second half of 2023, inflation eased and the current account deficit fell. The expected upturn in activity in 2024 should ensure that growth comes close to its potential, driven by household consumption, private investment and mining exports. Political pressures have eased after the decision to suspend the process of adopting a new Constitution (which is expected to be left alone for a number of years). Nevertheless, Gabriel Boric’s government and the opposition parties are still clashing on a number of areas, most notably, fiscal reform, pension system reform and the energy sector framework law.
The debate on monetary sovereignty in emerging countries is resurfacing with, on the one hand, the plan of Argentinian President Javier Milei to dollarise his economy, and on the other, the temptation of several West African country leaders to abandon the CFA franc. The abandonment of the CFA franc with the aim of recovering the flexibility of an unpegged exchange rate regime and greater autonomy of monetary policy, is an argument that is either weak in theory or unconvincing in practice.
Oxford Insights’ AI 2023 preparedness index offers a great starting point to harness the digital divide across the region with Brazil and its vibrant Fintech sector on one end of the spectrum and Haiti on the other, lacking basic infrastructure. To that point-in-time snapshot, however, we can add a backward-looking component (investment rate over the past decade) and a forward-looking one (projected fiscal space) to get a more complete picture of some of the challenges lying ahead as the region furthers its digital transformation.
For his return at the helm of Brazil, Lula can look at his first year back in office with some contentment: macro-financial indicators boasted solid prints, social programs were given a new impetus, an ambitious change in direction was initiated on the environment and the government’s capacity to reform ended up being much stronger than anticipated by most observers. This picture, nonetheless, conceals some imbalances most apparent in Brazil’s growth profile, the dynamics of unemployment and the structure of its trade balance. The markets’ renewed skepticism relative to the government's ability to balance its books (despite the new fiscal framework) constitutes another grey area. In 2024, economic growth, inflation and interest rates will be lower than in 2023
Following his clear victory in the presidential election, the new president, Javier Milei, intends to push ahead with the liberalisation and deregulation of the economy. A decree and an omnibus bill containing just over 1,000 measures, including some very radical ones, are already being scrutinised in the National Congress of Argentina. These measures have been received rather favourably by the markets and the IMF. However, against a very tense political and social backdrop, the economy is plunging into stagflation and thecountry’s financial situation is still very precarious. The government has already discussed a reprofiling of domestic public debt repayments with the banks. A default on external debt could still be avoided with support from the IMF
Rising long-term yields in the US are causing waves in the region : they have reverted FX gains seen earlier in the year, redirected portfolio flows and are complicating plans to issue debt to fund the energy transition.
Brazil’s cyclical performance continues to boast positive surprises. Growth and employment have held up well, core inflation is retreating, trade surpluses are beating all-time records and the real is holding its ground despite a rising dollar. Against this backdrop, the Central Bank eased its monetary policy in August for the first time in a year. These developments coupled with the revival of social policies, have helped spur a rise in Lula's approval ratings. In search of new growth drivers to reduce inequality and accelerate the energy transition, the President unveiled the third act of his Growth Acceleration Pact (Novo PAC). Financing the investment programme, however, poses questions in the face of the recently enacted fiscal framework
Mexico’s economic activity is expected to slow in the next few quarters under the combined effect of the slowdown in the US economy and the continuation of high interest rates. Beyond 2024, growth could be supported by a new driver, nearshoring, the effects of which are starting to be seen in export and investment data. The next administration, to be elected in June 2024, will therefore face the challenge of implementing the structural reforms necessary to take full advantage of this new relocation strategy and maintain financial support for Pemex, while limiting the slippage in public finance.
