Fitch Ratings expects emerging market (EM) credit conditions to become more challenging in the second half of 2025, as the implementation of US tariffs and slowing international demand increase risks for issuers.

This is despite the resilience of the global economy and capital markets during the first half of 2025.

“We have revised our 2025 sector outlooks for Asia-Pacific, Eastern Europe and Sub-Saharan Africa sovereigns to ‘deteriorating’, from ‘neutral’, to reflect the tougher conditions. We also maintain our greater China sovereign outlook at ‘deteriorating’. Our sovereign sector outlooks for the Middle East and North Africa, and for Latin America remain ‘neutral’, partly due to lower tariff-related exposure”, the Uk based firm said.

Weaker prospects for bank loan growth, asset quality and profitability amid exposure to US trade policies also led us to adjust to some EM banking sector outlooks, though most remain unchanged.

“We revised our sector outlooks in Korea, Mexico, Taiwan and Thailand to ‘deteriorating’, from ‘neutral’, and in Vietnam to ‘neutral’, from ‘improving’, though banking sector operating environment scores have so far been resilient”, it stressed.

“Our projections for corporates in Latin America, EM EMEA and EM Asia-Pacific show total revenue flat or contracting in 2025, but we expect EBITDA margins to remain broadly resilient. Most corporate outlooks for EM regions remained ‘neutral’ in our mid-year revisions”, it added.

Meanwhile, liquidity conditions in EMs have improved since the April 2025 US tariff announcements, driven partly by renewed foreign investor interest and a weaker US dollar, though international EM borrowing costs remain elevated.

There is a risk liquidity conditions could tighten in the second-half of 2025 as global economic growth slows and the dollar appreciates against most EM currencies.

But Fitch expects policy rates in major EMs to trend lower or stay stable, providing support to refinancing conditions.