Emerging markets are set to power the world economy, with countries from India and Indonesia to Brazil and Mexico delivering the bulk of global expansion as advanced economies navigate higher-for-longer interest rates and softening demand. According to recent projections from the International Monetary Fund and the World Bank, emerging and developing economies are expected to account for the clear majority of global growth over the next two years, led by Asia.
The shift reflects firmer domestic consumption, accelerated infrastructure spending, rapid digital adoption, and a reordering of supply chains that is steering new manufacturing and investment toward South and Southeast Asia as well as Latin America. India’s momentum, China’s slower but still sizable output, and nearshoring gains in Mexico and Central America are reshaping trade patterns and capital flows.
The turn is not without risks: elevated debt burdens, climate shocks, and a busy election calendar could unsettle markets, while persistent inflation and geopolitics may test policymaking. For now, the growth impulse is increasingly coming from the Global South-reshaping the world’s economic center of gravity.
Table of Contents
- Supply chain shifts and digital finance propel Asia, Latin America and Africa as multinationals relocate production and services
- Governments should fast track power grids, ports and workforce skills to anchor productivity gains and broaden inclusion
- Portfolio strategy favors local currency bonds, consumer platforms and green infrastructure with hedges for currency volatility and governance risk
- Key Takeaways
Supply chain shifts and digital finance propel Asia, Latin America and Africa as multinationals relocate production and services
As corporates reconfigure global footprints in the wake of supply disruptions and shifting geopolitics, capital and capacity are tilting toward dynamic nodes across Asia, Latin America and Africa, where upgraded logistics, special economic zones and greener power are converging with real-time payments, mobile wallets and embedded finance to compress transaction costs and accelerate scale; the result is not just factory relocation but a broader migration of shared services, engineering and customer operations, supported by cloud infrastructure and expanding talent pools, and underwritten by maturing local capital markets that improve working-capital cycles, enable supplier finance, and reduce friction in cross-border settlement.
- New production nodes: Vietnam, India, Indonesia, Thailand and Mexico capture autos, electronics and pharmaceuticals as firms diversify beyond single-country exposure.
- Service delivery hubs: Monterrey, Bogotá, Buenos Aires, Bengaluru, Manila, Nairobi and Cairo scale shared services, product engineering and customer experience backed by AI and data centers.
- Digital rails: UPI in India, Pix in Brazil, M-Pesa in East Africa and PAPSS in West Africa compress settlement windows and lower cross-border costs for payroll, procurement and SME onboarding.
- Trade architecture: RCEP, AfCFTA and USMCA streamline rules of origin and logistics, reinforcing nearshoring, onshoring and “friendshoring” strategies.
- Execution risks: Power reliability, port capacity, regulatory clarity and FX volatility remain watchpoints, but targeted incentives and public-private projects are narrowing infrastructure and compliance gaps.
Governments should fast track power grids, ports and workforce skills to anchor productivity gains and broaden inclusion
With emerging markets supplying an outsized share of global growth, policymakers are moving to convert cyclical tailwinds into structural gains by removing infrastructure and skills bottlenecks. Strengthening power transmission to integrate renewables and curb losses, decongesting ports through deeper drafts and digital customs, and expanding workforce training via industry-aligned credentials would compress logistics costs, lower outage risk, and widen access to formal, higher‑productivity jobs. The execution imperative is immediate: front‑load delivery, crowd‑in private capital, and link public funds to measurable service outcomes so that expansion reaches smaller firms, women, and youth rather than reinforcing incumbency.
- Power: expedited approvals for grid upgrades and regional interconnectors, modern metering to reduce theft, and clear feed-in rules to mobilize private renewables.
- Ports: berth automation, shore-power and cold‑ironing, 24/7 operations with single‑window clearance, and dedicated SME export lanes.
- Workforce: tax credits for apprenticeships, portable micro‑credentials co-designed with industry, and childcare-linked training to boost participation.
- Financing: blended instruments and performance-based contracts that de‑risk investment while enforcing uptime and throughput KPIs.
Portfolio strategy favors local currency bonds, consumer platforms and green infrastructure with hedges for currency volatility and governance risk
Institutional allocators are rotating toward local‑currency sovereigns and quasi‑sovereigns with improving external balances and credible monetary frameworks, pairing them with scalable consumer platforms benefiting from formalization and digital payments, and pipeline‑rich green infrastructure supported by policy incentives and concessional finance; execution remains disciplined, using targeted hedges to contain FX volatility and embedding protections to mitigate governance risk amid uneven transparency and policy shifts.
- Local duration and real carry: Focus on front‑ to belly‑of‑curve LC bonds and inflation‑linked notes where disinflation is entrenched and real yields remain positive.
- Consumer demand capture: Tilt to payment rails, e‑commerce logistics and telecom super‑apps with proven unit economics and cash‑flow visibility.
- Green build‑out: Allocate to project bonds, green sukuk and yieldco structures in renewables, grid upgrades and urban transit with contracted offtake.
- FX risk controls: Use NDFs, options collars and cross‑currency swaps with dynamic hedge ratios tied to balance‑of‑payments and term‑premium signals.
- Governance safeguards: Hardwire ESG KPIs with coupon step‑ups/downs, audit rights, independent directors and minority‑protection clauses.
- Political risk mitigation: Consider insurance wraps, multilateral guarantees and PPP frameworks to stabilize cash flows and recovery values.
- Liquidity and sizing: Prioritize benchmark‑eligible lines, maintain cash buffers and cap single‑name exposure to manage gap risk.
- Scenario discipline: Pre‑define drawdown triggers, re‑hedge bands and exit protocols around elections, subsidy reforms and FX regime changes.
Key Takeaways
As global growth slows and advanced economies contend with higher rates and weak productivity, emerging markets are carrying more of the load. Demographics, supply‑chain reconfiguration and rapid digital adoption are providing momentum, even as tighter financing conditions and climate risks complicate the outlook.
Whether this leadership endures will hinge on policy execution. Investments in infrastructure and skills, stronger institutions, and credible fiscal and monetary frameworks will be critical to sustain capital inflows and raise potential growth. The path of U.S. interest rates, China’s trajectory, commodity prices and a dense election calendar add uncertainty. For now, the center of gravity in the world economy is shifting-how firmly it settles will be decided in the choices emerging markets make next.