S&P: Rising trade protectionism to hurt GDP growth in most emerging markets

S&P Global Ratings forecasts that the increasing trade protectionism among major economies will negatively impact the GDP growth of most emerging markets in 2025. While the exact impact will vary based on specific policies adopted by different economies, the ratings firm anticipates an average policy rate cut of 100 basis points for Emerging Markets next year. Elijah Oliveros-Rosen, Chief Economist, Emerging Markets at S&P Global Ratings, delved into the details of the report during an interview on CNBC Africa. Oliveros-Rosen highlighted the potential repercussions of trade diversion and tighter rules of origin on the macro environment of emerging markets. He pointed out that the next US administration could likely engage in a tit-for-tat trade escalation with China, which might adversely affect economies closely tied to Chinese trade, especially in Southeast Asia. While South Africa also has exposure to China, primarily through commodity exports, the diversification of export destinations could mitigate some of the risks. The discussion then shifted towards how emerging markets could prepare for and mitigate the impacts of rising trade protectionism. Oliveros-Rosen mentioned that many emerging markets are well-positioned to continue cutting rates, with South Africa already witnessing inflation below 3% for two consecutive months. The South African Reserve Bank is expected to align its rate cuts with the Fed, potentially reducing its policy rate to around 7% to stimulate domestic demand. Reflecting on the trade policies during the first term of the Trump administration, Oliveros-Rosen recalled a trade reorientation where Chinese exports found new markets outside the US, including some emerging markets. This led to both challenges and opportunities for domestic producers in those markets. Looking ahead to 2025, he emphasized the importance of monitoring global demand as a key channel for transmitting the impacts of trade protectionism. Regarding monetary policy for emerging markets, Oliveros-Rosen anticipated that the US Fed would cut rates, with further reductions expected in the next year. He predicted that most emerging markets would follow a similar path of rate cuts to support growth, though outliers like Brazil might hike rates due to specific factors. Overall, the normalization of policy rates closer to neutral levels is seen as beneficial for driving growth in emerging markets in 2025. In conclusion, while the specter of rising trade protectionism looms over emerging markets, proactive monetary policy adjustments and strategic responses to changing trade dynamics can help mitigate the potential adverse effects on GDP growth and macroeconomic stability in the coming year.