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Emerging markets are becoming increasingly influential amid shifting global power dynamics. Traditional alliances are weakening, and a struggle for dominance between the US and China is reshaping international relations. Many emerging economies, notably China, India, and Brazil, are now active global players, largely due to their control over natural resources vital for advancing AI technologies and facilitating the global energy transition. Rather than being passive recipients of policy changes from advanced economies, these countries are asserting their influence on the world stage.
Emerging markets defy uncertain global dynamics
Economically, emerging markets are expected to maintain steady GDP growth at around 4% for 2025 and 2026. Many countries accelerated exports to the US early in 2025 to circumvent tariffs, making exports a key growth driver. However, in response to ongoing US tariffs, Asian economies are now seeking alternative export markets. Despite these positive trends, some lower-income countries such as Myanmar and Bolivia are lagging due to conflict, rising inequality, and social unrest.
Inflation in emerging markets has generally been falling, particularly in Asia, with 2026 inflation projected to decline to around 5%. However, regions like parts of Africa and Eastern Europe continue to struggle with high inflation, largely due to structural issues such as food supply constraints. Prudent monetary policies and improved budget management have helped many emerging market central banks keep inflation expectations in check.
Several factors underpin the resilience of emerging markets. Many have strengthened domestic policies, reduced national debt, and increased international reserves, which has improved their ability to weather economic uncertainty. As global trade patterns shift in response to higher US tariffs, emerging markets are seeking new trade partners and investment sources. Notably, sustainable investment funds outperformed traditional funds in early 2025, and AI-related investment is expected to continue benefiting emerging Asia. Growth in the service sector and advancements in technology, particularly AI, are supporting economic activity, though the benefits are unevenly distributed and could increase inequality.
Capital flows to emerging markets have increased, attracted by sound policies and a desire for risk diversification, though these flows are mostly short-term. Nevertheless, significant challenges persist, including armed conflicts, economic rivalries, and a global race for critical minerals needed for AI technologies. Partnerships with emerging markets are increasingly driven by investment interests rather than development aid, often lacking mechanisms to ensure sustainable development.
The future success of emerging markets hinges on how well economic gains are shared, especially in reducing inequality, creating jobs, and promoting sustainability. Impact investing and a commitment to social inclusion and environmental stewardship will be essential for sustainable growth. Triodos’ investment approach prioritises sustainability and social inclusion, emphasizing that long-term investors should focus on improving quality of life, while governments address security and defense concerns. The coming years will be crucial in determining whether emerging markets can achieve inclusive and lasting progress.