Global Growth Outlook and Emerging Markets

By Libby George

LONDON (Reuters) – Global growth is expected to slow in 2025, with offshore investors likely to reduce their investments in emerging markets by nearly 25%. This reaction follows the economic policies anticipated from incoming U.S. President Donald Trump, according to the Institute of International Finance (IIF).

The report highlights that anticipated tariffs, a stronger U.S. dollar, and slower interest rate cuts from the U.S. Federal Reserve are already impacting investor confidence. In its semi-annual report, the IIF noted, "The environment for capital flows has become more challenging, tempering investor appetite for risk assets."

Among emerging markets, China is predicted to face significant challenges, with a projected outflow of $25 billion in portfolio investments by 2025. Conversely, non-China emerging markets, especially resource-rich economies in the Middle East and Africa, are expected to see robust inflows in bonds and equities.

The IIF forecasts global growth to moderate to 2.7% in 2025 from 2.9% this year, while emerging markets are set to grow at 3.8%. However, capital flows to these markets are expected to fall to $716 billion from $944 billion this year, largely due to diminished flows to China.

The IIF has cautioned that its base scenario assumes selective tariff implementation. Should Trump enact the proposed 60% tariffs on China and 10% on other regions, this situation could worsen significantly. It stated, "A stronger and swifter implementation of tariffs by the United States could exacerbate downside risks, amplifying disruptions to global trade and supply chains, placing additional strain on EM capital flows."