Corporate and sovereign default rates are decreasing as GDP growth, slowing inflation and monetary easing aid debt management. But EMs face a number of credit risks including potential US tariffs.

In this joint Big Picture-Emerging Markets Decoded episode, our regional analysts highlight the key US policy areas to watch in Europe, Asia-Pacific and Latin America -- and discuss which economies and sectors could be at risk if policies were to dramatically change.

Institutional reforms, policy reversals, debt restructurings and the prospect of new hydrocarbon production are leading to gradual improvement in some sovereigns’ creditworthiness from weak levels.

Risk exposure is highest for those directly involved in the region’s three main hotspots. But the knock-on economic effects of the tensions have the potential to hurt, or help, other APAC governments.

India's large domestic market shields its companies from external shocks, whereas Indonesia's export-dependent commodity sector prompts government efforts to diversify growth.

Challenges include the region’s reliance on fossil fuels to meet energy demand amid population growth, the companies’ weak financials and governments’ reliance on revenue from oil and gas producers.

Rate hikes in Turkiye have slowed inflation, and confidence in the country’s currency is increasing. The sovereign’s creditworthiness is improving as a result, along with that of Turkish companies.

The opposition to proposed tax hikes impedes the government’s ability to increase revenue and reduce debt. Similar risks exist for other emerging market sovereigns too.

We have revised our aggregate EM forecast up slightly to 3.9% for 2024-25 to reflect faster-than-expected growth in some of the largest EMs so far this year. Disinflation continues but is slowing.

The creation of a coalition government following 29 May elections will likely support broad policy continuity and reforms, but the risk of government instability and ineffectiveness is significant.