Emerging Markets: Unlocking Global Growth Potential

Emerging markets are nations characterized by rapid industrialization and improving per capita incomes, playing a pivotal role in today’s interconnected economy. With growth projected at more than double the expected growth of advanced economies, these regions offer both opportunity and complexity for investors, policymakers, and stakeholders worldwide. Accounting for 51% of global GDP in 2025, emerging markets have driven over 66% of GDP growth in the past decade, underscoring their central importance to the global growth story.

Current Growth Landscape

Global growth among emerging markets is forecast to decelerate to 3.7% in 2025, yet this remains well above the 1.4% average of advanced economies. While overall global expansion will moderate to 2.3%, developing economies continue to outpace their mature counterparts, reflecting ongoing structural shifts and investment flows.

Per capita income growth is expected to reach 2.9% in 2025, slightly below the 2000–2019 average, but still significant given the broader slowdown. Low-income countries could see growth rebound to 5.3%, although recent downgrades highlight persistent vulnerability to external shocks and policy shifts.

Investment Trends & Performance

In Q2 2025, the MSCI Emerging Markets IMI Index surged by approximately 12.7%, outpacing the MSCI World (+11.5%) and S&P 500 (+10.9%). This upside reversal reflects renewed investor confidence and the appeal of undervalued assets in key economies.

Returns across emerging markets have become more uneven, making domestic demand driving sustained growth crucial. Countries such as China and India have seen resilient consumption patterns, shielding them from external headwinds and underscoring the importance of sectoral and country-specific stock selection.

Trade Shifts and Globalization

Tariff de-escalation in US-China relations has eased some trade tensions, yet fresh tariffs introduced in early 2025 triggered market volatility and softer growth in vulnerable economies. Over the past 25 years, emerging market exports have soared by more than 460%, while the US share of those exports has declined from 20% to 14%, as intra-regional trade and new global value chains reshape the landscape.

Commodity-exporting nations face headwinds from slowing global demand, emphasizing the need for economic diversification and regional integration to bolster resilience in a complex geopolitical environment.

Resilience and Risks

Inflation in emerging markets is projected to ease from 8% in 2024 to 5% in 2025, though this remains elevated relative to central bank targets. Countries like Bolivia, Ghana, and Turkey continue to grapple with double-digit inflation, testing monetary frameworks and social stability.

Most emerging markets outside China maintain healthy balance sheets and low debt, with public debt averaging around 25% of global outstanding debt. This financial strength has enabled greater monetary autonomy and more proactive policy adjustments ahead of major central banks.

• Policy uncertainty and trade tensions continue to disrupt forecasts.
• Inflationary pressures persist in tight labor markets.
• Business sentiment is at five-year lows in many regions.
• Poverty and income gaps risk widening without stronger growth.

Catalysts for Future Growth

Emerging markets benefit from a large young expanding population that underpins consumption growth and innovation. Ongoing technology, green energy, infrastructure investments are reshaping economic structures and creating new growth pathways.

Structural shifts in digital finance, clean energy, and technology adoption promise to enhance productivity and support sustainable development over the long term.

• Demographic dividend driving consumer markets.
• Rapid adoption of digital and fintech solutions.
• Renewable energy investment scaling across regions.
• Infrastructure projects boosting connectivity.

Regional Spotlights

Growth dynamics vary across major regions, each presenting unique opportunities and challenges. India and ASEAN economies are set to lead with robust domestic demand, while China’s stabilization adds positive momentum. Sub-Saharan Africa and the Middle East show promising trajectories, driven by demographic trends and policy reforms.

These figures highlight the sustainable long-term development opportunities present across diverse markets, emphasizing the importance of tailored strategies for each region.

Challenges and Opportunities

Despite solid fundamentals, emerging markets face ongoing hurdles. Slower growth impedes efforts to reduce poverty and close the income gap with developed economies. Policy uncertainty and external shocks necessitate robust governance and adaptive frameworks.

• Enhance social safety nets and reduce inequality.
• Accelerate trade facilitation and market access.
• Invest in education and workforce upskilling.
• Strengthen institutional and regulatory capacity.

Long-Term Outlook and Strategic Recommendations

A faster rebound scenario—halving current tariffs—could boost global growth by 0.2 percentage points in 2025 and 2026, illustrating the tangible benefits of resolving trade disputes. Sustaining growth near 4% could gradually restore pre-pandemic output levels, though this will require two decades in many regions outside China.

Investors and policymakers should prioritize diversified portfolios, with exposure to technology, consumer goods, and sustainable industries. Collaboration on regional integration, renewable energy projects, and digital infrastructure will amplify growth potential and resilience.

By leveraging strong fundamentals, embracing innovation, and pursuing targeted reforms, stakeholders can unlock global growth potential and ensure that emerging markets continue to drive the next era of economic expansion.