Emerging markets are in the midst of a fragile recovery, the conditions of which are complicated by quick-changing macro factors, ratings and default trends, and emerging credit risks. We've collected insights from a recently concluded campaign by our colleagues at Moody's Ratings to help you stay updated on developments.

Navigating recovery and new challenges

While the outlook for the global emerging markets remains cautiously optimistic, it's important to remember that despite gradual, if uneven, GDP growth and slowing inflation, conditions are fluid and can shift rapidly. 

Additionally, regional differences play a crucial role in shaping the resilience and vulnerability of various markets. While some areas show promising signs of recovery, others are grappling with unique challenges that threaten to disrupt their growth trajectory. For instance, countries with diversified economies and strong fiscal policies are better positioned to navigate uncertainties, whereas those heavily reliant on commodity exports or facing political instability may struggle more.

Investor appetite for EM sovereigns

On the upside, investor appetite for EM sovereigns is improving, even as challenges remain. With the prospect of eventual rate cuts in the US and other major developed markets this year, demand for emerging market sovereign debt is on the rise. Several EM governments are taking advantage of narrowing spreads to refinance upcoming market maturities at affordable rates.

While the current environment should allow most EM sovereigns to manage their debt refinancing needs more comfortably, market sentiment swings remain a liquidity risk, especially for EMs reliant on foreign currency private sector financing. Higher for longer interest rates will further aggravate difficulties for EMs that struggle to afford debt.

Want to learn more? Access content related to this campaign*:

• Gradual recovery in emerging market credit conditions will continue (infographic)
• Frontier markets: higher risk, higher potential returns (podcast)
• Local currency bond markets are growing quickly in certain emerging market countries
• Improved financing conditions will not solve emerging market sovereigns’ credit challenges
• Government ownership shapes standalone strength and support for government-related issuers
• Asset-quality risk for banks will persist in several emerging markets
• Views from Moody’s Global Emerging Markets 2024 Summit (virtual event)

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Navigating the recovery and new challenges in emerging markets requires a keen understanding of regional dynamics and global economic trends. In this complex environment, it’s essential to stay informed and adapt to changing circumstances.  If you're interested in staying updated on the emerging markets space, make sure you bookmark the link below.