Kuala lumpur: Moody’s Ratings forecasts that emerging market (EM) macroeconomic and credit conditions will remain resilient in 2026, continuing the trend seen this year. The rating agency highlights that geopolitical and policy changes are influencing EMs, with governments focusing on domestic priorities and strengthening cross-border relationships to navigate challenges like tariffs and US-China tensions.
According to BERNAMA News Agency, Moody’s Ratings indicates that elections in several EMs could lead to policy changes, with societal pressure pushing governments to prioritize social stability over long-term reforms. In response to US tariffs, EMs are diversifying trade relationships, negotiating bilateral deals with the US, enhancing ties with China, and updating agreements with the EU and other partners. The EU’s recent trade deal with Indonesia and its ongoing negotiations with India, Thailand, Malaysia, and the Philippines are examples of such efforts.
The report also points out that US policy rate cuts, a weaker US dollar, and increased investor risk appetite will continue to drive capital inflows to EMs. This influx is expected to boost the growth of local currency bond markets, although uncertainty surrounding domestic elections and policy shifts may affect investor interest, particularly for entities with weaker credit quality.
Moody’s Ratings also highlights the potential growth opportunities in artificial intelligence (AI) and data centres, despite associated risks. The demand for AI and cloud computing is driving data centre expansion, with geopolitical factors shifting growth from China to other Asia-Pacific EMs such as Malaysia, Indonesia, and Thailand. Malaysia and Indonesia, in particular, have benefited from spillover demand due to constraints in Singapore.
Furthermore, the report notes that EMs are more vulnerable to extreme weather events compared to advanced economies, with limited resources for adaptation and resilience. Investment in this area is insufficient due to competing priorities and financial challenges. Nearly half of EM sovereigns face high credit exposure to physical climate risks, such as floods and hurricanes, but have limited fiscal strength to address these challenges.