EM outlook Q4 2026: weathering the storm
Emerging markets have held up better than expected despite the Middle East conflict, higher energy prices, and rising global bond yields. These dynamics will increasingly test fiscal buffers, prompting some central banks to tighten, but many should still be able to chart their own course.
Duration: 1 Min
Date: 28 Sept 2026
EM outlook Q4 2026: weathering the storm
The resilience of emerging market economies has surprised in the months since the Iran war began.
Domestic policy responses have partially shielded households and firms from higher prices, but it was strong exports from AI-capex and China’s reduction of oil imports that provided most support.
But, with little sign of an end to the Middle East conflict, a drawn-out period of high energy prices will test fiscal buffers and raise upside inflation risks. China’s role as a pressure valve to the global oil market may also weaken, while El Niño may add to food inflation, albeit with a wide range of impacts.
Despite these pressures, on net, the EM rate cycle should tighten only modestly. The rise in developed market bond yields over Q3 has not triggered disorderly moves for EM bonds or currencies. EM debt dynamics are manageable, with smaller primary balance shortfalls relative to their debt stabilising levels than many DMs.
Brazil’s October election puts its debt dynamics in the spotlight, but it retains especially high yields and tight monetary policy, while leading candidates should push through modest consolidation.
The meeting between Presidents Xi and Trump should reduce trade uncertainty, but progress on AI safety is unlikely.
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