While the Fed eased its monetary policy on 10 December for the third consecutive FOMC meeting, without making any guarantees about future action, the Bank of England (BoE), the ECB and the Bank of Japan (BoJ) are holding their respective meetings this week. The BoE is expected to cut its key interest rate, the ECB to keep it steady, and the BoJ to raise it. These decisions come amid resilient growth performance despite shocks, which should lead central banks to remain cautious, whether in terms of easing (a residual cut expected for the BoE and none for the ECB) or raising key rates (which should remain a gradual process in Japan). This climate of monetary policy neutrality could be accompanied by greater pressure on long-term sovereign rates than during the period of monetary easing.
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Twice a year, BNP Paribas Economic Research invites you to take stock of the global economic situation at a dedicated conference. For the December 2025 edition, the team has chosen to review the past year and present its outlook for 2026 with Jean Lemierre, Chairman of the Board of Directors of BNP Paribas.
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In today’s discussion, we delve into the public finances of emerging economies in 2025, based on an exclusive analysis of our most recent EcoPerspectives issue focused on these economies. With robust but slowing growth, rising public debt and limited fiscal flexibility, what challenges and opportunities lie ahead for these countries?
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GDP growth reached 0.5% q/q in the third quarter, well above the figures recorded for nearly three years. This outperformance came despite the period of political uncertainty that began in June 2024 and sluggish household consumption.
Between 2013 and 2018, India experienced robust productivity growth (increasing by a factor of 1.3, comparable to Vietnam, slightly lower than China, and higher than Indonesia, Malaysia, the Philippines and Thailand). However, from 2019 onwards, productivity in India has stagnated, while it has continued to rise in other countries (with the exception of the Philippines). This trend is particularly concerning given that GDP per capita remains low (in PPP, it was 2.4 times lower than that of China in 2024) and unemployment is high, especially among young people (15.6% in 2024 according to official data). Without a rapid increase in productivity, India could remain a ‘middle-income’ country.
Growth in emerging economies remained solid in 2025, driven by exports and supportive financial conditions. Global trade was stimulated by export front loading ahead of US tariff increases, as well as by the reconfiguration of trade flows and the boom in the tech sector. In 2026, growth in emerging economies is expected to remain resilient but become more moderate. Supportive factors are likely to fade and global trade is expected to slow down. Fiscal and monetary policies will continue to support domestic demand but will be more constrained than in 2025. Monetary easing will be more measured, and fiscal room for manoeuvre will be reduced by the need to curb the increase in public debt ratios.
September's US employment figures reported the highest payroll growth since April (+119k). However, this fairly positive reading could prove short-lived due to the impact of the government shutdown. For the Fed, these developments add to the uncertainty surrounding its December meeting. We are still expecting a 25bp rate cut, which is now a close call.
The Eurozone labour market remains dynamic. The unemployment rate, at 6.3% in September, remains close to historic lows, while net job creation, although slowing in 2025, continued in Q3 (+0.1% q/q). According to Eurostat, the Eurozone has created almost seven million additional jobs since the end of 2019.
This is a positive surprise, and it deserves to be highlighted in the current context: according to initial estimates, growth in the Eurozone in the third quarter was higher than expected.
There has been remarkably limited interest in Europe at recent international economic and financial gatherings, as if “Europe’s moment”, as ECB President Lagarde dubbed it back in the Spring, has already passed in the eyes of many. Meanwhile, European media outlets have been indulging in negative narratives about political risks, persistent industrial doldrums, and inability to implement reforms that might preserve Europe’s place in a world increasingly dominated by the US and China. And yet, under the radar, a lot of good things have been happening.
Growth in emerging economies has remained solid since the beginning of the year, thanks in particular to buoyant exports and easing financial conditions. Up until the summer, the front-loading of purchases in anticipation of tariff increases in the United States stimulated trade. In addition, global trade flows have been reorganised. In 2026, fiscal and monetary policies will continue to support growth, but will be more constrained. Monetary easing will be less pronounced than in 2025, if only because of the uneven pace of disinflation across countries. Fiscal policy will be constrained by the need to curb the growth of public debt ratios
After a solid start to the year, Chinese economic growth has gradually slowed. Thanks to a rapid reorientation, exports have weathered the US tariff shock well. They are the main driver of economic activity, while domestic demand remains stubbornly fragile. The authorities have launched an “anti-involution” campaign, but adjusting demand policy in order to boost domestic investment and consumption, at a time when exports may begin to run out of steam, is also becoming urgent. Despite the deterioration in public finances in recent years, the central government and local governments still have some room for manoeuvre to act.
India's economic growth surprised on the upside between April and June 2025 (+7.8% y/y). However, activity is less dynamic than it appears, and the downside risks to growth are high. Household consumption remains sluggish. To support domestic demand and offset the impact of the rise in US tariffs on activity, the government has announced a reduction in VAT rates, even though its fiscal room for manoeuvre is limited. The central bank is likely to remain cautious in its monetary easing, as downward pressure on the rupee remains strong. In the medium term, the growth outlook could deteriorate if the United States maintains tariffs on Indian exports that are much higher than those on products from other Asian countries.
Indonesia is less exposed to the consequences of the US tariff increases than other ASEAN countries, but risks are tilted to the downside. Companies have begun to suspend their investments. Against this backdrop, the authorities have stepped up measures to support the economy. The central bank has cut its key interest rates more than in other Asian countries, and the new Finance Minister has announced an increase in social spending. Public debt remains under control, but it is financed mainly on bond markets, particularly by foreign investors who are concerned about fiscal slippage under the Prabowo administration. However, although this government is less conservative than the previous one and the situation calls for greater vigilance, the risks to debt sustainability are contained.
