Emerging market economies are proving to be far more resilient than in the past thanks to healthier fundamentals than most investors realise.
By Lola Saugy, Quantitative Economist, (Lead on Latin America) Pictet Asset Management.
Emerging market economies should be able to withstand the challenges that US President Donald Trump’s second administration throws their way. They are considerably more resilient than they were during his first stint in the presidency thanks to a handful of factors we argue in an article published in FT Adviser that can be read here. Even debtor emerging economies are in a good position to withstand global shocks.
In a nutshell, domestic debt levels are relatively stable, while falling interest rates and the fact that a greater proportion of their borrowing is denominated in domestic currencies makes outstanding debt easier to service (see Fig. 1).
Fig. 1 – Stable loads
Total external debt of median EM debtor countries, % of GDP
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Source: Pictet Asset Management, CEIC, Refinitiv, Bloomberg. Data covering period 01.01.2017 to 01.01.2024.
Both private and government debt levels (see Fig. 2) are significantly lower than among developed countries. Private sector debt among EM debtor countries was 84% of GDP in 2024, compared with 180% of GDP among developed economies. And the relative levels of government debt are 57% versus 100%.
Fig. 2 – Picture of prudence
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Source: Pictet Asset Management, CEIC, Refinitiv, Bloomberg. Data covering period 01.01.2017 to 01.01.2024
At the same time, deglobalisation is less of a force than many fear. Exports between emerging economies are considerably higher than their exports to the US (see Fig. 3).Throw in the fact that the Chinese economy is recovering (it has been an engine of growth for much of the emerging world) and the upshot is that emerging economies are in a much better position than they were in 2018, when Trump first stepped on the international stage.
Fig. 3 – Weaned off American demand
EM exports to other EM countries vs. to the US, % of total exports
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Source: Pictet Asset Management, CEIC, Refinitiv. Data covering period 01.12.1990 to 01.09.2024.
