Key Takeaways

  • Emerging market (EM) GDP growth eased in recent quarters but remains fairly robust in aggregate. Some major EMs saw growth heading close to zero or contracting towards the end of 2023, but there are notable pockets of resilience, such as India. In some cases, we have seen additional momentum in service sectors and tech exports since the start of the year.
  • There has also been a continued decline in headline inflation across regions, as well as a subsiding of core inflation towards central bank targets in most major EMs. 
  • However, there are elements of upside risks to the inflation outlook, given still elevated services inflation and persistent labour market tightness in some markets
  • These risks, combined with the fact that the Fed is on hold and a strong US dollar, should mean EM policymakers will move cautiously but continue to gradually lower policy rates in the near term.
  • Once the Fed and other major central banks begin easing, we expect more EMs – particularly in Asia – to embark on cutting cycles, with still ample scope for rate cuts in a soft-landing scenario. 
  • That said, market volatility around the US election could prove challenging for some of the lower yielders, particularly in Asia, implying risks of shallower cutting cycles.

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