The global financial landscape in 2025 presents a complex mix of continued opportunities and heightened risks for emerging economies (EMs). While EMs are generally projected to remain the primary drivers of global growth, their trajectory is heavily influenced by policy decisions in advanced economies, particularly concerning interest rates and trade, as well as by persistent geopolitical and financial stability risks.

Monetary Policy in Advanced Economies: The Ripple Effect

Decisions made by major central banks, most notably the U.S. Federal Reserve (Fed), exert a profound influence on global finance and, consequently, on EMs.

1. Interest Rate Trajectories and Capital Flows

• The Fed’s Stance: The anticipated path of US interest rates is a critical determinant. If the Fed follows through on expected rate cuts in 2025, it could be a net positive for EMs. Lower US rates typically:
  • Weaken the US Dollar (USD): A weaker dollar makes EM-denominated assets, including