JPMorgan’s annual outlook report warns that emerging markets face a turbulent 2025, with significant uncertainty stemming from political shifts in the United States and continuing challenges in China.
The bank expects growth in emerging markets to slow to 3.4 percent in 2025, down from 4.1 percent this year.
Excluding China, growth is expected to slow to 3.0 percent, from 3.4 percent in 2024.
The report highlighted how changes in US policy could trigger a negative supply shock, creating ripple effects across emerging economies.
With a stronger dollar and higher interest rates on the horizon, emerging market bond funds are expected to face outflows of between $5 billion and $15 billion in 2025.
The return of a Republican-led US government under Donald Trump is expected to bring tariff policies, geopolitical shifts and domestic changes that may strengthen the dollar and raise interest rates.
These factors will greatly influence sentiment towards emerging markets, especially their sovereign debt.
Despite these risks, the bank expects a 4.3 percent return on hard currency sovereign debt by the end of 2025, a decline from the expected 6.9 percent return for 2024.
The bank’s debt issuance forecasts show a slight decline in total hard currency sovereign debt issuances below the 2024 level. However, higher debt premiums mean that net financing will decline significantly.
On the market front, JPMorgan removed its overweight recommendation on the Dominican Republic’s sovereign debt, although it expects the country to achieve investment status within four years.
In addition, the bank shifted to reduce weight on domestic interest rates in Indonesia, signaling caution as emerging markets head into a difficult year ahead.
