Despite the war in Iran, the closure of the Strait of Hormuz and the temporary surge in energy prices, emerging economies have so far avoided a crisis scenario. Their growth is slowing marginally, inflation remains contained in most countries and financial markets have not collapsed. The most powerful growth engine is coming from Asia: global demand for chips, data centers and electronic goods linked to artificial intelligence is offsetting part of the oil shock and reshaping the external balances of several emerging countries.
Emerging economies have so far withstood the energy shock caused by the conflict in the Middle East better than expected. The surge in oil, gas and energy-related input prices was rapid, but less inflationary than in 2022. If monetary easing cycles have been interrupted in many countries, most central banks have been able to keep their rates unchanged over the past four months. Emerging financial markets did not experience a generalized loss of confidence, while macroeconomic buffers stronger than in summer 2022 helped absorb the rise in energy costs. In Asia, the region most dependent on Middle Eastern hydrocarbons, authorities have limited the risks of shortages by diversifying supply sources, mobilizing reserves and adjusting demand. Most importantly, countries exporting technological goods have been benefiting strongly from the boom in artificial intelligence. Investments in AI physical infrastructure and global demand for chips and other electronic goods have been supporting growth and external accounts of several emerging economies, sometimes more than the energy shock penalizes them. In the short term, the average growth of emerging markets should therefore only slow down moderately. Risks remain high, however, including more persistent inflation, possible increases in US Fed rates, geopolitical tensions, volatility in commodity prices and the risk of a tech cycle correction.
Growth in emerging economies: the energy shock slows activity and accelerates inflation, without causing a crisis
Emerging market economies have overall withstood the energy shock caused by the war in Iran. Their average growth, solid in the first quarter of 2026 (estimated at +1.0% q/q), is expected to slow only very moderately in the second quarter. Neither business surveys nor activity indicators experienced significant deterioration during the spring. The aggregate manufacturing PMI for emerging countries fell in March before rebounding in April and remaining almost stable thereafter; in June, it was in expansion territory (at 51.4) and slightly above its January-February average level. By the end of June, only four of the eighteen major emerging economies (Chile, Indonesia, Türkiye, Egypt) had a manufacturing PMI below 50 and lower than in February. In industrialized Asian countries that are also net hydrocarbon importers, PMIs remained well-oriented despite the energy shock. In Vietnam, real GDP growth accelerated to +8.4% y/y in Q2, up from +7.9% in Q1, driven by strong industrial production and export performance. In China, economic growth slowed in Q2 (+4.3% y/y after +5% in Q1), notably curbed by rising energy prices, lower public spending and weak demand of the domestic private sector (see the note on China).
On the inflation front, the shock proved less severe than expected: inflationary pressures have emerged quickly but remained moderate. The closure of the Strait of Hormuz had an immediate and significant impact on global energy prices (Brent price: +57% between late February and late April – see table A & chart B), as well as on fertilizer and petrochemical product prices. The shock quickly affected fuel prices and transport costs around the world. However, on the one hand, the increases have so far spread little to agricultural and food prices. This has significantly limited the impact of the energy shock on CPI inflation (energy typically accounts for less than 15% of the CPI basket in emerging countries, while the average weight of food is 30%), particularly when compared to the 2022 shock resulting from the war in Ukraine. On the other hand, oil prices fell from late April (Brent price: -19% in May and -21% in June), helped by the faster reduction in OECD countries' stocks and lower Chinese oil imports, and then by prospects of the reopening of the Strait of Hormuz[1].
The median CPI inflation rate in emerging markets has risen moderately, from 3.2% y/y in February to 4.3% in June. Inflation thus remains contained in a majority of countries (see chart C). In the countries most severely affected (notably the Philippines and Thailand, followed by Kenya, South Africa and Bulgaria), the inflationary shock is explained by a greater direct exposure to the energy price shock (Chart 1 below) and, in some cases, by the depreciation of their currency. Conversely, inflationary pressures have been the lowest in countries using subsidies or fuel price controls (for example India, Indonesia, Malaysia or the Gulf countries). In China, rising energy prices have helped reduce deflationary pressures (though not addressing the underlying structural causes): producer prices have been increasing since March after more than three years of decline, and CPI inflation has accelerated slightly to +1.1% y/y in Q2 2026 vs 0.8% in Q1.
Monetary easing cycles, which were underway in many countries at the beginning of the year, have generally been interrupted. But interest rate hikes have been few and limited in scope (see chart D). Since the beginning of the war in Iran, only a few central banks have significantly raised their policy rates, but not necessarily in response to the energy shock. It is, in particular, the case of Indonesia and Colombia: while their direct exposure to the energy price shock is limited (Chart 1), monetary authorities reacted, in the first case, to the nervousness of foreign investors and the depreciation of the rupee and, in the second, to the expansionary drift of fiscal policy and its effects on inflation (cf. Indonesia & Colombia). Monetary policy was also tightened in the Philippines and, to a lesser extent, in South Africa and the Czech Republic, as central banks acted quickly when inflation moved away from target (3%±1 for the Philippines and South Africa, 2%±1 for the Czech Republic). Korea’s central bank is the latest to have raised its policy rate on 16 July (+25bp) due to inflationary pressures in a context of solid economic growth (cf. South Korea).
A large number of central banks have kept their key interest rates unchanged, including in Asia. The monetary status quo could be maintained in Thailand (which is emerging from a year of deflation), Vietnam (whose central bank has objectives to stabilize prices but also to support demand) and China (which is seeking to stimulate credit and combat deflationary pressures). Brazil and Hungary are two exceptions as they have, as planned before the war, started their monetary easing cycle (since February, policy rates have been cut by 75bp in Brazil and 50bp in Hungary).
Exposure to the energy shockWhy are emerging countries coping better than in 2022 with the energy shock?
Macroeconomic resilience. Emerging countries’ macroeconomic fundamentals and their cyclical position have helped cushion the impact of the external shock. At the beginning of the year, emerging economies as a whole, experienced dynamics of strong growth, disinflation, and lowering public and external account imbalances. In India, for example, the authorities have more leeway to support the economy thanks to a smaller budget imbalance, lower current account deficit and more moderate inflation than in 2022 (cf. India). In Egypt, the adjustment of economic policies over the last few quarters (fiscal reforms, increased exchange rate flexibility) and support from international creditors have been helping to limit the destabilizing effect of rising energy prices (cf. Egypt). In Poland and more generally in Central Europe, inflation is much more moderate than in 2022, and inflation expectations are better anchored (cf. Poland).
Energy resilience. The supply shock was less severe than feared at the time of the first military attacks in late February. Hydrocarbon shortages and their direct effects on activity have been more limited. Asian countries – despite being the most exposed to supply disruption risks due to their reliance on hydrocarbon imports from the Middle East – have demonstrated strong adaptive capacity. They rapidly implemented solutions to reduce the risk of shortages, with measures to contain demand, search of alternative supply sources (for instance from Russia, floating stocks, etc.). Central European[2] and Latin American countries[3] are less or little dependent on hydrocarbons from the Middle East.
The absence of a financial shock. Emerging financial markets have not experienced widespread stress since the beginning of the war in Iran. Investment flows have been highly volatile in an international context marked by rising geopolitical risks and upheavals linked to the AI boom. However, overall, emerging markets have not experienced any major loss of foreign investor confidence. Financial conditions have tightened only slightly for emerging sovereign and private borrowers. CDS spreads and domestic bond yields tensions have remained contained and lower than in 2022, and currencies have generally held up well (Chart E). Between 27 February and 18 June 2026 (memorandum of understanding between the United States and Iran), the most significant depreciations affected either the countries most directly exposed to the energy shock, such as Thailand (-5.3% vs USD), South Korea (-6.2%) or the Philippines (-4.5%), or those with specific macroeconomic vulnerabilities, such as Indonesia (-5.7% vs USD), Romania (-5.4%) and Türkiye (-5.4%). Emerging currencies appreciated between the signing of the MOU and the resumption of military attacks in mid-July.
Another factor contributing to the broad resilience of the emerging economies is the boom in AI and global demand for AI-related goods.
The expansion of AI infrastructure supports activity in Asia
For emerging countries as a whole, the rise of AI represents a positive growth shock that offsets the negative impact of the energy shock. So far, the impact of AI expansion on emerging economies has been mainly through the spillover effects of investments in the physical infrastructure of AI[4] , via supply chains and global trade[5]. The countries that produce the goods necessary for the construction of data centers and other AI infrastructures (critical metals and, above all, chips and other electronic goods) have indeed a strategic advantage in their international relations, a solid export base and a growth driver. In some of these countries, the surge in global demand for AI-related goods is also reshaping external account dynamics.
Countries that produce critical minerals hold a particularly strategic position, but economic growth gains directly linked to the AI boom are modest in the short term. They export these minerals largely in their raw state, without great added value, and the quantities used are limited. While all AI-related goods account for about 15% of the total value of global exports (Oxford Economics data), raw materials represent less than 3%. However, the rise in critical metal prices has supported the terms of trade for exporting countries (for example, the price of copper has increased by 42% over the past year and by 8% since the beginning of 2026). This has enabled, particularly in certain Latin American countries, to offset the impact of rising prices of imported hydrocarbons since the beginning of the conflict in the Middle East.
Countries that produce chips and other electronic goods have, on the contrary, benefited from strong support for activity and exports over the last few quarters. It essentially concerns Asian countries, which provide 65% of global exports of AI-related goods and 85% of semiconductor exports (2025 data). Taiwan, as well as South Korea, China, Vietnam, Malaysia and Thailand are the main beneficiaries of the rise in global demand for AI-related goods in terms of impact on activity [6]. On the other hand, the impact on current account balances varies widely and depends on the producing country's position in the value chains.
Upstream in the chain, Taiwan and South Korea produce the most sophisticated and indispensable chips for AI, and the rise of AI supports activity and current account surpluses. Their merchandise exports have shown very high growth rates (+47% y/y in value in both Korea and Taiwan in H1 2026), driven by a strong increase in both volume (estimated at over 20% y/y in H1) and prices (see chart F). Export prices are supported by the rapid increase in demand and the rise in the value chain (in South Korea, the average price of exported semiconductors has more than doubled in a year). The growth in volumes has recently slowed down, with the manufacturing sector activity being constrained, on the one hand, by rising energy and commodity costs and, on the other hand, by high production capacity utilisation rates.
Boosted by production and exports of AI-related goods, Taiwan's economic growth reached 14.5% y/y in Q1 2026 (with a contribution from net exports of 10.3pp) and South Korean growth accelerated to 3.8% (with a contribution from net exports of 1.5pp). On the external account side, strong growth in chip exports and the improvement of terms of trade have had a direct and significant positive impact on the trade and current account balances (cf. chart 2 below). External surpluses are reaching record highs despite the rise in the energy bill. In Q1 2026, Taiwan's current account surplus is estimated at nearly 25% of GDP (vs. an average of 15% over the past five years), and South Korea's at nearly 15% of GDP, compared to 4% over the past five years (South Korea).
China exports a wider range of AI-related goods, but their production requires importing microprocessors and other high-value-added components, notably from South Korea and Taiwan. The boom in AI-related global demand is boosting export activity, and China's AI sector is becoming an essential driver of growth in both the industrial and services sectors. However, the balance of trade in AI-related goods is close to equilibrium, as imports are increasing in line with exports. Therefore, the boom in trade of AI-related goods does not increase China's trade surplus (cf. China).
Other exporters of tech goods are more specialized in the assembly, testing and packaging of chips to form electronic components at various stages of the value chain. They are all benefiting from solid support for economic growth and export revenues. However, not all have a position that allows them to increase their trade surpluses thanks to the rise in global demand for AI-related goods (cf. chart 2). Malaysia currently benefits from its status as a net exporter of hydrocarbons and semiconductors.
At the other end of the spectrum, Thailand, Vietnam and, to a much lesser extent, Mexico produce lower value-added goods. They are currently facing both the rise in energy costs and the rise in the price of electronic inputs that they have to import to run their factories (cf. Mexico). In Thailand and Vietnam, the trade balance moved from a surplus in H1 2025 to a deficit in the same period in 2026. The boom in AI therefore tends to exacerbate their external vulnerability. While Thailand has sufficient foreign exchange reserves to absorb shocks to its balance of payments, Vietnam has low forex reserves and could face some pressure on its currency in the coming months.
External accounts: countries have various positions in face of the energy shock and the AI boomForecasts for 2026: economic growth close to 4%, but three major sources of risk for turbulence
Average growth in emerging economies is therefore expected to slow only moderately in the short term. In our central scenario, we expect average growth slightly below 4% for the whole of 2026, after 4.5% in 2025. The slowdown is, unsurprisingly, most pronounced in the Gulf[7] and the Middle East. It is widespread but relatively moderate in Asian countries, with the effects of the AI boom helping to offset the consequences of the energy shock in the most industrialized economies. Asia’s average economic growth will remain the strongest among emerging regions. The slowdown is much less pronounced in Latin America, particularly thanks to the expected rebound in Mexico and the strong performance of Brazilian growth (cf. Mexico and Brazil), and in Central Europe, where activity is notably supported by public investment (see Regional Overviews).
The first downside risk to this central scenario is the inflationary risk. Inflationary pressures are expected to persist, driven by durably higher commodity prices. They could lead to a broader tightening of monetary policies. After the signing, in late June, of the MOU between the United States and Iran, global oil prices had returned to their pre-war levels, but they have been increasing again since the resumption of military attacks. They should remain volatile and high in the short term. Global prices of critical minerals are expected to remain high, particularly due to the wave of AI investments and electrification. Agricultural commodity prices could also rise faster than expected due to a combination of higher fertilizer prices and weather phenomena (El Niño, heatwaves, unfavorable monsoon in India, etc.). The IMF expects an 18.6% increase in the average price of non-fuel commodities in 2026, after +10% in 2025.
The second risk to our forecasts is the risk of tighter global financing conditions for emerging borrowers, which will partly result from the expected increase in US Fed rates and could further intensify if foreign investor sentiment deteriorates. Large depreciations of emerging currencies would then also increase inflationary pressures. In a global context marked by geopolitical tensions and upheavals driven by the AI boom, the risks of financial turbulence are significant.
The third risk is the potential correction of the technology cycle. A sudden slowdown in investments in data centers and digital infrastructures would directly weigh on economies most exposed to semiconductor value chains. Given the current narrow base of global growth and its concentration around tech, such a correction would not be limited to financial markets: it would also affect the real economy, particularly in the industrialized countries of Asia and countries dependent on US demand.
