EM GDP growth ticked up in Q3 but is likely to fall short of expectations over the coming quarters as stimulus in China disappoints and still-tight monetary policy takes it toll. For most EMs, a universal 10% tariff on US imports – our working assumption for Trump’s second term – will reduce GDP growth by 0.2-0.4%; a rounding adjustment. Helping to cushion the blow, we think EM currencies will weaken against the dollar next year, by 5% on average. The hit to GDP in China and Mexico – and the extent of their currency falls – will be larger.
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