EHSAN KHOMAN
Head of Commodities, ESG and
Emerging Markets Research –
EMEA
DIFC Branch – Dubai
T:+971 (4)387 5033
E: ehsan.khoman@ae.mufg.jp

SOOJIN KIM
Research Analyst
DIFC Branch – Dubai
T: +44(4)387 5031
E: soojin.kim@ae.mufg.jp

LEE HARDMAN
Senior Currency Analyst
Global Markets Research
Global Markets Division for EMEA
T: +44(0)20 577 1968
E: lee.hardman@uk.mufg.jp

MUFG Bank, Ltd.
A member of MUFG, a global financial group

Macro focus

The recently released bi-annual IMF Fiscal Monitor report offers a value accretive overview of the latest public financial developments with updates to the medium-term fiscal outlook. What makes this particular Fiscal Monitor report pertinent is that it comes a few weeks after US tariff pledges on 2 April (“Liberation Day”), alongside countermeasures by other countries, that are contributing to market volatility, policy uncertainty and downside risks to growth. This dent to global growth comes at a time when fiscal buffers are being pressured across the EM complex, with both debt levels and debt servicing costs elevated and fiscal deficits wider than in past periods of downturns. Across EM geographies, the IMF anticipates the widest fiscal deficits in EM Asia due to higher Chinese government spending, though the MENA region is set to see the largest revision (relative to the October Fiscal Monitor Report) to the downside, owing to predominantly lower commodity prices. Finally from a public debt perspective, the IMF projects global government debt to rise by 2.8ppts to 95.1%, with levels approaching 100% by 2030 (surpassing the COVID peak), with EMs set to experience a sharper increase relative to DMs.

FX views

It has been a more mixed week for EM FX performance. LatAm currencies have benefitted from building investor optimism that President Trump will take action in the coming months to further reverse more disruptive tariff hikes especially on China where the current 145% tariffs are judged to be “unsustainable”. Within EMEA FX, the recent underperformance of the PLN continues to stand out. The PLN has been undermined recently by the dovish repricing of the outlook for NBP policy. Market speculation over NBP rate cuts as soon as next month have been encouraged by comments from NBP officials who are weighing up whether to deliver a larger 50bps rate cut to start the easing cycle.

Week in review

Saudi Arabia has published its annual report into progress made nine years following the launch of Vision 2030 – the comprehensive report of the progress achieved by the 13 vision realisation programmes highlights that 93% of the 374 indicators for 2024 have either been successfully completed or are on track to meet their targets. S&P downgraded Bahrain’s sovereign outlook from stable to negative, reflecting increased risks to the fiscal position and the government’s ability to service and refinance debt. Headline inflation in South Africa fell from 3.2% y/y in February to 2.7% y/y in March, led by core prices. The Central Bank of Russia (CBR) maintained its key rate at 21.00%, in line with our (and consensus) expectations, but emphasised a tight monetary policy.

Week ahead

It will be a broadly busy week across EM EMEA. The National Bank of Hungary (MNB) will host a monetary policy meeting on 29 April (MUFG and consensus: on hold at 6.50%). Flash Q1 2025 estimates for Hungary (MUFG and consensus: steady at 0.4% q/q) and Czech Republic (MUFG and consensus: up 0.2ppts to 2.0% y/y) will be released. What’s more, flash CPI estimates will be released for Poland (MUFG and consensus: -0.7ppts to 4.2% y/y). Finally, there will be the first round of the (re-run) Presidential elections in Romania (4 May).

Forecasts at a glance

The external backdrop for EM has shifted abruptly – the soft-landing pro-risk environment and pricing of non-recessionary Fed cuts has given way to concerns around tariff risks (and likely retaliatory action), higher-for-longer US rates and a strong US dollar. This sets the stage for a challenging EM backdrop in 2025. There are dimensions that could make Trump 2.0 less disruptive. Given the reduced direct trade exposure of the Chinese economy to the US and expectations that there will be a monetary and fiscal response by Chinese policymakers to offset the tariff growth shock, the economic and financial market disruptions will, on aggregate, be less severe than Trump 1.0.

Core indicators

The latest weekly IIF flow data signalled that EM securities witnessed inflows of USD3.4bn in the week ending 25 April. The breakdown suggests that equities inflows reached USD2.0bn and debt inflows USD1.3bn, showing a relatively balanced recovery across asset classes.