Emerging Markets Hold Firm Despite Rising Global Risks
Emerging economies entered the second half of 2026 with notable resilience, having successfully navigated a series of economic and geopolitical challenges in the first months of the year. However, this resilience faces more complex tests as risks linked to the Middle East escalate, oil prices rise, and the prospect of a slowdown in global trade looms, according to a recent report by Oxford Economics.
The report noted that economic performance in the first half of the year exceeded expectations in many emerging markets, supported by strong exports in emerging Asia and sustained domestic demand in emerging Latin America and Europe. The Middle East and North Africa (MENA) region remained the sole area where 2026 growth forecasts fell below pre-conflict projections.
The report highlighted that emerging economies have become more interconnected than ever before. Asian exports no longer rely solely on demand from advanced economies or China; they also benefit from improved demand within other emerging markets, providing additional support for industrial and commercial activity in the region. However, this very interconnectivity increases exposure to risks, whether stemming from weak demand related to artificial intelligence technologies, supply chain disruptions, escalating geopolitical tensions, or a slowdown in demand within emerging economies themselves.
Stronger Momentum
The report stated that first-quarter gross domestic product (GDP) data showed several emerging economies entering 2026 with stronger-than-expected momentum. This was driven by benefits gained throughout 2025 from the reshaping of global trade flows, continued demand for AI-related products, and the robustness of China’s export sector. Consequently, growth forecasts were raised for many countries compared to previous estimates.
Although official first-quarter data reflected only the initial phase of the Middle East conflict’s repercussions, second-quarter economic indicators continued to demonstrate the resilience of emerging economies. Growth data came in better than expected in Malaysia, Vietnam, Singapore, the Czech Republic, and Morocco. Saudi Arabia stood out as the notable exception, recording an economic contraction that exceeded expectations in the second quarter.
Economic Activity
Oxford Economics’ nowcasting models indicate that emerging economies continued to grow during the second quarter, benefiting from improved industrial production and services, which offset weak consumer confidence and the ongoing slowdown in the construction sector. The strongest performance was recorded in emerging Asia, excluding China, as well as in Central and Eastern European economies. China experienced only a limited slowdown, while Latin American economies began to lose some of the momentum generated by a strong start to the year.
The report observed that economic institutions have tended in recent years to underestimate the resilience of emerging markets, often starting with conservative growth forecasts that are gradually revised upward as actual economic data emerges. This pattern has not been limited to private research firms; the International Monetary Fund (IMF) has also raised its growth forecasts for emerging economies on multiple occasions, acknowledging their flexibility in facing global disruptions.
Export Contribution
The report noted that the recent improvement in growth forecasts was primarily driven by a rising contribution from exports, particularly from China and Vietnam, as well as several commodity-exporting countries such as Argentina, Ecuador, and Algeria. Meanwhile, the contribution of domestic demand remained uneven across different regions, reflecting the diverse growth drivers within emerging economies.
Emerging Asia was identified as the main engine behind the improvement in economic performance, benefiting from sustained demand for electronics and AI-related technologies, as well as the ongoing reshaping of global trade. However, the report ruled out the possibility that the export boom would lead to a similar surge in domestic consumption, citing limited job creation, weak real wage growth, and continued pressures on household wealth.
Growth Slowdown
The report warned that the second half of the year would be more challenging, with new assumptions being incorporated into economic forecasts. These include the persistence of high oil prices, reduced shipping traffic through the Strait of Hormuz, and weaker global economic activity compared to previous estimates.
Consistent Performance
The report clarified that Latin America continued to deliver consistent performance, supported by strong consumer spending, investment, and government expenditure. Meanwhile, emerging European economies managed to offset weak external demand through improvements in domestic consumption and investment. In contrast, the MENA region remained the sole exception, with growth forecasts still below pre-conflict levels due to the impact of the regional conflict and weak activity in the oil sector.
