World Bank forecasts slower growth across emerging markets amid headwinds

Malaysian Reserve

a day ago

ECONOMIC growth across most emerging markets and developing economies (EMDEs) is projected to slow, particularly in trade-dependent regions such as East Asia and the Pacific (EAP) and Europe and Central Asia (ECA), and to a lesser degree in South Asia (SAR), according to the World Bank Group.
In its latest Global Economic Prospects report for June 2025, the bank also noted that lower global commodity prices are expected to weigh on economic activity and government revenues in some commodity-exporting countries, particularly in the Middle East and North Africa (MNA), Sub-Saharan Africa (SSA), Latin America and the Caribbean (LAC), and ECA.
'As a result of this weak outlook, prospects for spurring the job creation needed to lift incomes and reduce poverty are subdued,' it said.
In some trade-exposed regions, the growth slowdown in 2025 compared to last year is expected to be broad-based, affecting 78 per cent of EAP economies and 73 per cent of ECA economies.
In EAP, the slowdown largely reflects tight trade linkages—both globally and within the region, especially with China, where macroeconomic policy support is expected to offset the adverse effects of rising trade tensions with the United States.
The report explained that in several EAP economies, including Myanmar, Thailand, and Vanuatu, recent powerful earthquakes have disrupted economic activity.
In ECA, although the deceleration in growth is broad-based and aligned with the projected weakening growth in the euro area, one of ECA's largest export markets, it also reflects slowing activity in the Russian Federation due to the lagged effects of earlier monetary policy tightening.
The World Bank noted that inflation trends have diverged across EMDEs in 2025, with ECA seeing a rise in late 2024 and early 2025, driven by higher food prices and strong wage growth.
'More recently, it has moderated somewhat, alongside easing energy prices in some economies, but remains above four per cent in most ECA subregions,' the bank said.
Conversely, inflation has softened in MNA and SAR, although it remains high in some countries. In EAP, inflation mostly declined due to falling commodity prices.
On average, inflation in 2025 is expected to remain stable or decline modestly across regions, supported by softer energy prices.
The trade outlook remains challenging across all EMDE regions, due to heightened global policy uncertainty, ratcheting trade tensions between major economies, and a projected slowdown in external demand this year.
While some EMDEs temporarily benefited from the front-loading of exports ahead of anticipated tariffs, growing uncertainty and trade restrictions are expected to dampen investment and disrupt global value chains, leading to downward revisions to trade growth forecasts for this year in nearly every region.
'Trade growth is projected to slow markedly in EAP and LAC and, to a lesser extent, in SSA. Meanwhile, it is expected to pick up in MNA as oil production cuts are reversed, although this is somewhat offset by weaker external demand.
'Trade growth in SAR is projected to strengthen, supported by robust domestic demand in India that boosts imports,' the World Bank said.
In EAP, stronger investment growth is largely due to additional fiscal support in China. Excluding China, investment is expected to soften in line with global trends.
In SAR, investment growth is forecast to pick up over 2026-2027, partly due to easing domestic political uncertainty and looser monetary policy in several economies, which should help counter global headwinds.
The World Bank noted that fiscal policy stances are expected to vary by region, with mixed implications for economic activity.
In LAC, SAR, and SSA, gradual fiscal consolidation is necessary and will likely pose modest headwinds to growth, though it could help address fiscal deficits and stabilise public debt if sustained.
In ECA, fiscal policy is expected to remain somewhat supportive of activity, with deficits set to widen this year, partly due to rising military expenditures, before a gradual shift towards consolidation.
In EAP, increased government spending is expected to significantly support demand in China and, to a lesser extent, in Thailand. In many other large EAP economies, fiscal support, including from social spending programmes and public investment, is anticipated to be more moderate, with a relatively neutral impact on growth.
The World Bank warned that global policy uncertainty has risen sharply in recent months and may persist, posing a substantial downside risk to all EMDE regions.
Abrupt policy changes, particularly in trade, could unsettle financial markets and prompt firms to delay or cancel investments.
'Regions that depend more on investment-led growth, particularly where it is linked to trade-intensive production, are especially vulnerable to the cooling effects of rising policy uncertainty.
'This includes EAP and ECA, and to a lesser extent, LAC, MNA, SAR, and SSA,' the bank said.
The World Bank said rising policy uncertainty could also weaken global risk appetite, reducing capital flows to EMDEs, pushing up borrowing costs, and leading to currency depreciation and further inflationary pressures.
Regions with a high share of low-creditworthy borrowers and large external debt, especially where denominated in foreign currencies or with short maturities, are especially susceptible to sudden shifts in market sentiment and external financing conditions.
'This could particularly affect LAC and SSA, but also several economies in ECA, MNA, and SAR,' it added. — BERNAMA