Economic Outlook Emerging Markets Q2 2024: Growth Divergence Ahead (2024)

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  • Table of Contents
    • Emerging Market Countries
    • Resilient Global GDP Will Support EMs
    • Lower Global Interest Rates Will Loosen EM Financial Conditions
    • EM Economic Growth Remains Vulnerable To Setbacks
    • Forecast Update
    • Risks To Baseline Growth
    • Appendix
    • Related Research
  • We believe resilient global growth, especially in the U.S., and loosening financial conditions have marginally improved macroeconomic conditions for emerging markets (EMs) since the end of 2023.
  • However, EMs still have to contend with the lagged effects of high interest rates and the consequences of the U.S.' eventual shift to below-trend growth, which we expect in the second half of the year.
  • We expect growth in EMs will diverge significantly in 2024, moderating for many countries that outperformed in 2023 and slightly increasing for some countries that underperformed.

On balance, macroeconomic conditions for emerging markets (EMs) in 2024 have improved marginally since the end of 2023.This is mainly due to continued resilience in global economic growth, especially in the U.S., and a modest improvement in financial conditions as we expect monetary policy to eventually loosen in the U.S. and the eurozone this year.

In this context, we expect significant growth divergence across EMs. Growth will moderate for many countries that outperformed in 2023 (such as Brazil, Mexico, and India but remain relatively strong. Conversely, some countries that underperformed last year (among them, Colombia, Peru, Thailand, Hungary, Poland, and South Africa will grow modestly faster in 2024, but in most cases activity will remain subdued.

Despite improving conditions, EMs will still face significant obstacles this year that will keep economic paths highly vulnerable. These include the lagged effects of high interest rates and a drag from an eventual slowdown in U.S. growth, which we expect will be more noticeable in the second half of 2024.

Chart 1

Economic Outlook Emerging Markets Q2 2024: Growth Divergence Ahead (1)

Emerging market countries in our sample are Argentina, Brazil, Chile, Colombia, Mexico, and Peru in Latin America; Hungary, Poland, Turkiye, Saudi Arabia, and South Africa in EMEA; and China, India, Indonesia, Malaysia, the Philippines, Thailand, and Vietnam in Asia.

Resilient Global GDP Will Support EMs

Our growth outlook for the U.S. has improved modestly since the previous quarter, due in part to ongoing resilience in the labor market. We now expect GDP growth of 2.5% in 2024 for the U.S. (compared to 1.5% last quarter), matching last year's growth rate (see "Economic Outlook U.S. Q2 2024: Heading For An Encore," published March 26, 2024).

This means a stronger boost from the U.S. economy to EMs than we previously anticipated, especially during the first half of 2024. Survey trends suggest manufacturing may have found a floor in the country and will start adding to growth, boosting manufacturing activity in EMs that are linked to the U.S. economy.

Our outlook for the eurozone remains broadly unchanged, and we still anticipate the manufacturing recession in Germany to be largely behind us (see "Economic Outlook Eurozone Q2 2024: Labor Costs Hinder Disinflation As Rate Cuts Loom," published March 26, 2024). In China, our growth assumption of 4.6% in 2024 also remains unchanged from last quarter (see "Economic Outlook Asia-Pacific Q2 2024: APAC Bides Its Time On Monetary Policy Easing," published March 25, 2024).

Chart 2

Economic Outlook Emerging Markets Q2 2024: Growth Divergence Ahead (2)

Lower Global Interest Rates Will Loosen EM Financial Conditions

While inflation dynamics remain uncertain given sticky services prices and volatile goods prices, we expect the U.S. Federal Reserve and the European Central Bank (ECB) to start reducing interest rates toward the middle of this year. Market expectations, especially for Fed action, have moved significantly over the last few months, but they now price in three 25-basis-point (bp) cuts this year, in line with our expectations.

We expect EM central banks that have already cut rates (mostly those in Latin America) to continue doing so in the coming months, and those that haven't done so yet (mostly in EM Asia) to start later this year. In this context, U.S. and domestic long-term interest rates have fallen, and issuance activity has picked up--although so far mostly among investment-grade issuers.

Chart 3

Economic Outlook Emerging Markets Q2 2024: Growth Divergence Ahead (3)

Growth paths across EMs will diverge significantly in 2024.Across the 18 major EMs that we analyze, we expect GDP growth to accelerate in half and decelerate in the rest. In 2023, only two major EMs saw faster GDP growth than 2022 (China and India).

We generally expect countries that are more exposed to the U.S. to outperform again this year relative to those more exposed to the eurozone or China. In 2023, EMs exposed to the U.S. did better than those exposed to the eurozone, while those with close economic ties with China saw mixed performance.

However, idiosyncratic factors--such as unfavorable weather events, social unrest, high levels of political uncertainty, and varying degrees of fiscal stimulus--also explained the large variance in growth outcomes last year and will remain significant drivers in 2024.

Because of the large divergence in growth last year, EMs entered 2024 at different stages of their economic cycles (see chart 5). We therefore expect GDP growth in economies that were expanding above trend in 2023 to decelerate modestly in 2024, while those that grew below trend last year will improve in 2024 but remain below trend in most cases.

Chart 5

Economic Outlook Emerging Markets Q2 2024: Growth Divergence Ahead (5)

EM Economic Growth Remains Vulnerable To Setbacks

Potential setbacks to EM economic growth include the lagged effects of high interest rates, which will increase the cost of servicing debt and financing new investments. Furthermore, we expect the U.S. economy to slow in the second half of 2024. The recovery in the eurozone will remain fragile, and subdued confidence and property sector woes will continue to generate uncertainty over the trajectory of the Chinese economy. Finally, a heavy electoral agenda could keep policy predictability lower than normal, which may restrain investment in some cases.

Forecast Update

The growth narrative for EMs has improved marginally compared to our previous economic outlook, in November. Our 2024 real GDP growth forecast for EMs excluding China is 3.9%, (from 3.8% previously), broadly unchanged from 4.0% growth in 2023. Our 2025 growth projections are also broadly unchanged--we forecast EMs excluding China to grow 4.4% that year.

We made the largest upward revisions to our 2024 GDP growth forecasts for Mexico (70 bps), Turkiye (60 bps), Peru (50 bps), and India (40 bps). We lowered our growth projections the most for Argentina (200 bps), Saudi Arabia (50 bps), Hungary (40 bps), Poland (30 bps), and Thailand (30 bps).

Table 1

S&P Global Ratings GDP growth forecasts
Real GDP (%) --Change from November 2023 forecasts--
EM countries201920202021202220232024f2025f2026f2027f20232024f2025f2026f
Saudi Arabia0.8-
South Africa0.3-
EM-17 (excl. China)2.6-
Other key economies
Aggregates are weighted by purchasing power parity GDP (2017-2021 average) share of total. For India, 2019 = FY 2019 / 20, 2020 = FY 2020 / 21,...,2027 = FY 2027 / 28. FY year begins on April of calendar year. f--S&P Global Ratings forecasts. Source: S&P Global Market Intelligence.
Regional summaries

Latin America:Our 2024 real GDP growth forecast for the region remains 1.2% (or 2.0% excluding Argentina), although we made several country-specific revisions. The main upward growth revisions in Latin America are for Brazil and Mexico:

  • We now expect the Brazilian economy to expand 1.8% this year (from 1.5% previously), driven by continued--albeit diminishing--fiscal support. Lower domestic interest rates will encourage a recovery in investment, especially toward the second half of 2024.
  • In Mexico, we now see 2.5% growth this year (from 1.8% previously), in line with the upward revision to our U.S. GDP growth forecast. Growth in Mexico will remain supported by a sharp uptick in public nonresidential investment in the run-up to the June general election. We expect growth will slow more noticeably in the second half of 2024, once public investment slows and U.S. demand moderates. We anticipate broad policy continuity under the next government.

We also increased our 2024 projection for Peru to 2.7% (from 2.2% previously), but mostly due to an expected rebound from a GDP contraction of 0.6% in 2023. The outlook for investment in Peru remains weak due to ongoing political uncertainty.

Our 2024 growth projections for Chile and Colombia remain broadly unchanged. Following weak performance and a large drop in investment (most notably in Colombia) in 2023, we expect subdued recoveries this year in both countries. Investment in Colombia will likely remain modest this year due to uncertainty around a series of reforms proposed by the current administration.

Finally, we lowered our 2024 GDP projection for Argentina, which we now see declining 3.5% this year (from 1.5% previously). This is due to the over 54% devaluation of the Argentine peso in December and a very large reduction in fiscal expenditure, both as part of a series of adjustments implemented by the new administration.

EM EMEA:Subdued growth in Western Europe led us to slightly lower our 2024 GDP forecasts for Hungary (2.2%, from 2.6% previously) and Poland (2.8%, from 3.1% previously). Both economies saw domestic demand pick up in the second half of last year before losing steam at the beginning of this year.

We also lowered our 2024 GDP growth projection for Saudi Arabia to 2.2% (from 2.7% previously), mainly because we expect oil production cuts to last at least until the beginning of Q4--longer than we previously anticipated. That said, we expect growth in the non-oil sector to remain robust.

Our projections for South Africa are broadly unchanged. We expect growth to improve to 1.3% in 2024, compared to 0.6% last year. Logistics, infrastructure, and electricity supply issues remain challenges, and an upcoming general election at the end of May could generate some uncertainty among investors--although we expect broad policy continuity under the next government.

Despite some signs of deceleration in the second half of 2023, we raised our 2024 GDP growth projection for Turkiye to 3.0% (from 2.4% previously), owing to a nearly 50% minimum wage hike in January. Inflation has recently been higher than we expected, increasing which prompted the central bank to increase its reference interest rate by 500 bps to 50% on March 21.

EM Southeast Asia:We lowered our 2024 GDP growth estimates by a marginal 20 bps-30 bps for most economies in the region, mainly as a result of weaker growth at the end of 2023. Overall, we expect growth for 2024 in EM Southeast Asia to improve compared to 2023. While the lagged effects of tighter monetary policy will lower domestic demand growth this year, we expect the region's modest trade and manufacturing recovery to continue.

We increased our India GDP growth forecast for the fiscal year ending March 2025 to 6.8% (from 6.4% previously), reflecting stronger momentum in the economy. We expect public and private investment activity and urban consumption to remain resilient in 2024, although we anticipate some moderation as tighter monetary policy slows demand. India's economic growth was durable over the last quarter of calendar-year 2023, with strong growth in services and manufacturing offset somewhat by weak agriculture sector growth.

We expect gradual rate cuts in the region in the second half of the year as inflation remains low and U.S. monetary policy begins to ease. Among the central banks on hold, the Bank of Thailand may face pressure to ease policy first, since the country's inflation is below zero. In Malaysia, we expect only one cut later this year because the policy interest rate is close to central banks' neutral estimate.

Vietnam is an exception. The central bank eased monetary policy in 2023 to alleviate pressures from weak economic conditions. The economy is now seeing higher inflation and domestic demand following weak activity in 2023. If inflation continue to rise, the central bank could raise interest rates this year.

Risks To Baseline Growth

A more protracted or severe conflict in the Middle East is a major risk to our growth outlook for EMs, due to the potential consequences for shipping and energy prices. The risk that the U.S. economy falls into recession is also a significant downside risk. This would have significant penalties for the global economy, with an outsize effect on EMs that share strong economic ties with the U.S., such as several Latin American countries.

Alternatively, a stronger-than-expected U.S. economy, while generally positive for EMs, could in the short term add more upward pressure on interest rates and on the U.S. dollar (with negative implications for EM inflation through foreign exchange pass-through effects). Finally, a heavy and divisive electoral agenda this year and next in several EMs could take a toll on investment due to lack of policy visibility.


Table 2

Consumer price inflation (year average)
(%)201920202021202220232024f2025f2026f2027fCentral bank inflation target
Argentina53.542.048.472.4133.5275.0105.052.540.0No target
Brazil3. +/- 1.5
Chile2.33.04.611. +/- 1.0
Colombia3.52.53.510. +/- 1.0
Mexico3. +/- 1.0
Peru2. - 3.0
India4. +/- 2.0
Indonesia2. +/- 1.0
Malaysia0.7- target
Philippines2. +/- 1.0
Thailand0.7- +/- 1.5
Hungary3. +/- 1.0
Poland2. +/- 1.0
Turkiye15.212.319.672.353.855.827.318.011.05.0 +/- 2.0
Saudi Arabia- target
South Africa4. - 6.0
f--S&P Global Ratings forecasts. Source: S&P Global Market Intelligence.

Table 3

Policy rates (end-year)
Argentina55.00 38.00 38.00 75.00 100.00 70.00 55.00 40.00 35.00
Brazil4.50 2.00 9.25 13.75 11.75 9.00 9.00 9.00 9.00
Chile1.75 0.50 4.00 11.25 8.25 5.00 5.00 5.00 5.00
Colombia4.25 1.75 3.00 12.00 13.00 9.00 7.00 7.00 7.00
Mexico7.25 4.25 5.50 10.50 11.25 9.50 7.00 7.00 7.00
Peru2.25 0.25 2.50 7.50 6.75 4.00 4.00 4.00 4.00
China3.25 2.95 2.95 2.75 2.50 2.30 2.30 2.30 2.30
India4.40 4.00 4.00 6.50 6.50 5.75 5.25 5.00 5.00
Indonesia5.00 3.75 3.50 5.50 6.00 5.25 4.75 4.50 4.50
Malaysia2.96 1.75 1.75 2.75 3.00 2.75 2.75 2.75 2.75
Philippines4.00 2.00 2.00 5.50 6.50 5.75 4.25 4.00 4.00
Thailand1.25 0.50 0.50 1.25 2.50 2.00 1.75 1.75 1.75
Hungary0.90 0.60 2.40 13.00 10.50 6.00 3.00 3.00 3.00
Poland1.50 0.10 1.75 7.50 5.75 5.75 4.75 3.00 3.00
Turkiye12.00 17.00 14.00 9.00 45.00 45.00 20.00 15.00 10.00
Saudi Arabia2.25 1.00 1.00 5.00 6.00 5.00 3.75 3.50 2.50
South Africa6.50 3.50 3.75 7.00 8.25 7.50 6.50 6.00 6.00
Note: For China, we show the one-year medium-term lending facility. f--S&P Global Ratings forecast. Source: S&P Global Market Intelligence.

Table 4

Unemployment rate (year average)
Argentina9.8 11.6 8.8 6.8 6.4 9.5 8.5 8.0 7.9
Brazil12.1 13.5 13.5 9.5 8.0 8.7 8.6 8.3 8.3
Chile7.2 10.5 9.1 7.8 8.6 8.2 7.6 7.5 7.4
Colombia10.9 16.7 13.8 11.2 10.2 10.9 10.4 10.0 9.9
Mexico3.5 4.4 4.1 3.3 2.9 3.3 3.4 3.4 3.4
Peru4.0 7.8 5.9 4.4 4.5 4.6 4.4 4.2 4.1
China5.2 5.6 5.1 5.6 5.2 5.1 4.9 4.8 4.7
Indonesia5.1 6.0 6.4 5.8 5.4 5.2 5.2 5.1 5.0
Malaysia3.3 4.5 4.6 3.8 3.4 3.3 3.2 3.2 3.2
Philippines5.1 11.3 7.8 5.4 4.4 4.6 4.2 4.2 4.1
Thailand1.0 1.6 1.4 1.2 1.0 1.0 1.0 1.0 1.0
Hungary3.3 4.1 4.0 3.7 4.0 3.8 3.7 3.7 3.6
Poland3.3 3.2 3.4 3.2 2.8 2.6 2.5 2.5 2.4
Turkiye13.7 13.2 12.0 11.2 9.8 10.5 10.7 10.5 10.3
Saudi Arabia5.6 7.7 6.6 5.6 5.2 4.9 4.4 4.0 3.8
South Africa28.7 29.2 34.3 33.5 32.5 31.3 31.0 31.0 30.8
f--S&P Global Ratings forecast. Source: S&P Global Market Intelligence.

Table 5

Exchange rates versus US$ (year average)
Argentina48.30 70.60 95.10 130.70 296.30 1,210.00 2,700.00 3,900.00 4,850.00
Brazil3.94 5.16 5.40 5.17 5.00 5.00 5.05 5.13 5.18
Chile703 792 759 873 840 960 980 990 998
Colombia3,281 3,694 3,742 4,254 4,327 3,980 4,050 4,150 4,225
Mexico19.26 21.49 20.28 20.12 17.79 17.25 17.75 18.25 18.75
Peru3.34 3.49 3.88 3.83 3.74 3.75 3.80 3.90 4.00
China6.90 6.90 6.40 6.70 7.10 7.10 6.90 6.80 6.70
India70.90 74.20 74.50 80.00 82.80 83.30 84.60 85.90 87.50
Indonesia14,150.00 14,593.00 14,307.00 14,853.00 15,237.00 15,614.00 15,675.00 15,744.00 15,775.00
Malaysia4.14 4.20 4.14 4.40 4.53 4.62 4.30 4.25 4.21
Philippines51.80 49.60 49.30 54.50 55.60 54.80 52.80 51.50 50.90
Thailand31.00 31.30 32.00 35.10 34.80 35.90 35.80 35.50 35.30
Hungary290.70 308.00 303.10 375.10 353.10 360.30 366.10 368.75 370.00
Poland3.80 3.90 3.90 4.20 4.20 4.01 4.03 4.13 4.17
Turkiye5.70 7.00 8.90 16.44 24.73 35.00 41.25 42.63 43.50
Saudi Arabia3.75 3.75 3.75 3.75 3.75 3.75 3.75 3.75 3.75
South Africa14.50 16.50 14.80 16.40 18.50 18.90 19.10 19.20 19.20
f--S&P Global Ratings forecast. Source: S&P Global Market Intelligence.

Table 6

Exchange rates versus US$ (end-year)
Argentina59.90 84.15 102.75 177.13 808.50 2,100.00 3,300.00 4,500.00 5,200.00
Brazil4.03 5.20 5.58 5.16 4.84 5.00 5.10 5.20 5.20
Chile745 711 850 861 885 975 985 995 1,000
Colombia3,277 3,433 3,981 4,812 3,822 4,000 4,100 4,200 4,250
Mexico18.85 19.95 20.58 19.40 16.92 17.50 18.00 18.50 19.00
Peru3.31 3.62 3.97 3.81 3.71 3.75 3.85 3.95 4.05
China7.00 6.50 6.40 6.90 7.10 6.90 6.80 6.70 6.60
India72.40 72.90 75.20 81.70 83.00 83.50 85.00 86.50 88.00
Indonesia14,067.00 14,386.00 14,261.00 15,592.00 15,439.00 15,650.00 15,700.00 15,750.00 15,800.00
Malaysia4.17 4.11 4.18 4.41 4.59 4.50 4.30 4.25 4.21
Philippines51.00 48.30 50.50 57.40 56.10 53.90 52.30 51.10 50.80
Thailand30.30 30.60 33.40 34.80 34.70 35.90 35.60 35.40 35.10
Hungary300.00 302.50 318.70 373.10 355.20 364.00 367.00 370.00 370.00
Poland3.87 3.78 4.04 4.28 4.15 3.90 4.10 4.15 4.20
Turkiye5.79 7.86 11.14 18.61 30.00 40.00 42.00 43.00 44.00
Saudi Arabia3.75 3.75 3.75 3.75 3.75 3.75 3.75 3.75 3.75
South Africa14.70 15.70 15.40 17.70 18.80 19.00 19.10 19.20 19.30
f--S&P Global Ratings forecast. Source: S&P Global Market Intelligence.

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The views expressed here are the independent opinions of S&P Global Ratings' economics group, which is separate from, but provides forecasts and other input to, S&P Global Ratings' analysts. The economic views herein may be incorporated into S&P Global Ratings' credit ratings; however, credit ratings are determined and assigned by ratings committees, exercising analytical judgment in accordance with S&P Global Ratings' publicly available methodologies.

This report does not constitute a rating action.

Chief Economist, Emerging Markets:Elijah Oliveros-Rosen, New York+ 1 (212) 438 2228;
Economist, Emerging EMEA:Valerijs Rezvijs, London(44) 79-2965-1386;
Senior Economist, APAC:Vishrut Rana, Singapore+ 65 6216 1008;

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