Fitch Ratings on Wednesday warned that emerging markets are set to face increasing macroeconomic headwinds in 2026 as the U.S. tariff shock ripples through global trade, weighing on growth prospects and external stability.
In its latest outlook, the credit rating agency said that while near-term liquidity in emerging markets remains broadly resilient—supported by continued monetary easing across several economies—the external environment is becoming more challenging due to trade tensions and slower global demand.
“Macroeconomic headwinds will present a growing challenge to emerging market issuers across sectors in 2026 as the U.S. tariff shock continues to evolve,” Fitch Ratings said in a statement.
The agency forecast that emerging market GDP growth will slow to 3.7% in 2026, down from 4.1% this year, falling below the 2020-2026 average of 4%. Growth in 2025, Fitch noted, had been slightly stronger than anticipated in its June projection of 3.7%.
The deceleration reflects the spillover effects of U.S. tariff increases in 2025, which have reshaped global trade flows. While trade diversion has helped sustain China’s exports despite a decline in shipments to the United States, China’s GDP growth slowed to 4.8% in the third quarter of 2025, weighed down by weak domestic demand.
Fitch said Washington’s new “reciprocal” tariff policy has imposed higher-than-expected rates on several major emerging markets.
Estimated effective tariff rates built into Fitch’s forecasts stand at 36% for India, 27% for Brazil, 22% for Indonesia, and 19% for Vietnam, though the agency noted these rates remain subject to change as trade negotiations evolve.
Despite the tariff pressures, monetary easing in emerging markets is expected to continue in 2026 as central banks capitalize on moderating inflation and a softer U.S. dollar. This easing cycle, Fitch said, should support debt issuance and refinancing, helping offset external risks to growth.
“Under our baseline, prospects for further monetary loosening in several major emerging markets will support debt issuance and refinancing,” the agency said.
“However, if global investor sentiment becomes more negative, high-yield emerging market issuer spreads could be vulnerable to significant widening, given they are well below historical norms.”
Analysts say countries such as Pakistan, Indonesia, and Vietnam—which rely heavily on external financing—may face increased volatility in capital inflows if global risk appetite weakens.
“Fitch’s warning reflects the delicate balance emerging economies must strike between supporting domestic growth and navigating global trade disruptions,” said a market analyst. “For Pakistan, maintaining fiscal discipline and securing external buffers will be key to managing spillover effects from global headwinds in 2026.”
Fitch said it will continue to monitor tariff developments and monetary policy adjustments in emerging markets as key drivers of credit conditions heading into 2026.
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