31 March 2025 — Emerging markets (EMs) are navigating increasingly turbulent economic conditions in 2025 as evolving US policies—particularly on trade—continue to send ripples across global supply chains, capital flows, and investor sentiment. According to Moody’s latest cross-sector macroeconomic outlook, titled "Macroeconomics – Emerging Markets: EMs buffeted by shifting US policies; ability to navigate choppy waters varies", the differentiation among EMs will grow more pronounced, exposing deep structural contrasts across regions and countries.

🔻 Economic Growth to Slow, But Not Collapse

While EMs are expected to maintain generally solid growth over the next two years, the report indicates a gradual return to “potential growth rates” amid heightened uncertainty. Moody’s projects average real GDP growth across EMs to decelerate from 4.5% in 2023 to 4.0% in 2025 and 3.9% in 2026.

• Asia-Pacific leads in growth potential, with countries like India (6.7%), Vietnam (6.5%), and Philippines (6.0%) continuing to outperform.

• China’s economy remains stable around 4%, supported by high-tech and infrastructure investment, but domestic consumption remains sluggish.

• In Africa, countries like Nigeria (3.0%) and South Africa (1.7%) benefit from improved policy coordination and energy grid stabilization, respectively, although structural energy constraints remain a concern.

• Middle East growth is accelerating due to increased oil output and infrastructure projects, especially in Saudi Arabia and the UAE.

• Central and Eastern Europe (CEE) shows signs of recovery driven by EU-funded investments, wage growth, and monetary easing, with Poland, Romania, and Hungary seeing the strongest bounce-backs.

• Latin America faces the sharpest slowdowns due to weakening domestic demand and structural investment issues. Mexico’s growth is downgraded to 2.5%, while Argentina is expected to rebound with a projected growth of 4.0% in 2025.

🚨 Trade Tensions Intensify: EMs Exposed to US Policy Risks

US trade policy under the Trump administration is creating unpredictable shocks, particularly for EMs reliant on preferential access to American markets.

• Mexico, Thailand, and Malaysia are most exposed due to deep integration into US supply chains and high export dependency. Over 27% of Mexico’s GDP comes from exports to the US, making it a direct target of the recently imposed 25% tariffs on Mexican goods. Some relief is provided under USMCA exemptions, but business confidence is already shaken.

• Vietnam is moderately exposed, with strong trade ties to the US but also preferential treatment in existing agreements.

• Nigeria, while imposing some of the highest tariffs on US goods (nearly 12%), has low dependence on US trade, limiting the risk of economic disruption from retaliatory measures.

• Colombia, Chile, and Peru are moderately exposed, but Colombia stands out due to a higher tariff differential despite its trade agreement with the US.

The report emphasizes that trade policy unpredictability could deter both domestic and cross-border investment, particularly in export-driven sectors, creating ripple effects in employment and revenue stability for affected nations.

💸 Capital Outflow Pressures Mount in Smaller, Open Economies

As investor risk appetite contracts, EMs with limited buffers and external vulnerabilities face mounting challenges in retaining capital.

• India and Brazil, due to their large, domestically driven economies, low external vulnerabilities, and deep capital markets, are relatively insulated. Both countries have External Vulnerability Indicators (EVI) of just 61%, among the lowest in the EM group.

• Philippines and Vietnam have relatively low EVI as well, but their high foreign-currency debt exposure makes them sensitive to exchange rate volatility. For instance, nearly all of the Philippines’ external debt is in foreign currency, increasing debt servicing costs during depreciations.

• Argentina and Colombia are under significant stress, with 99% and 98% of their external debt denominated in foreign currency, respectively. Argentina’s low reserves ($28B) compound its vulnerability.

• Turkey, Hungary, and Chile have some of the highest EVI ratios, signaling high short-term external debt pressure relative to their reserves.

• Countries like South Africa, India, and Poland are less susceptible due to a larger share of external debt denominated in domestic currency, providing a natural hedge against currency fluctuations.

📊 Key Economic Indicators from the Report (See Page 2 Table & Charts)

• Top 2025 Growth Forecasts:

  • India: 6.7%

  • Vietnam: 6.5%

  • Philippines: 6.0%

  • Indonesia: 5.0%

  • China: ~4.0%

• Latin America Highlights:

  • Argentina: 4.0% (recovery from recession)

  • Mexico: 2.5% (USMCA uncertainty impact)

  • Chile: Upgraded due to stronger consumption

• High Tariff Differentials vs. US (Page 5 Graph):

  • Nigeria: ~12%

  • Thailand: ~6%

  • Malaysia: ~3%

  • Mexico: ~1.5%

• External Debt (Foreign Currency) Vulnerability:

  • Argentina: ~99%

  • Colombia: ~98%

  • Philippines: ~95%

  • Thailand: Lower share in foreign currency, more resilient

🧭 Conclusion: Uneven Seas Ahead for EMs

Moody’s underscores that while some EMs possess the tools and resilience to manage economic headwinds, others remain dangerously exposed. The divergence in policy capacity, market depth, trade orientation, and debt structures will define how each country weathers the ongoing shift in global dynamics.

Investors and policymakers are urged to closely monitor US policy signals, global risk appetite, and capital flow patterns, as these will remain central to EM stability in 2025 and beyond.