Emerging markets face more challenging external environment heading in 2027 – Moody’s

Emerging markets, including Ghana, face a more challenging external environment heading into 2027, ratings agency Moody’s has disclosed in its Global Macro Outlook 2027.

According to the US-based firm, higher energy prices, elevated global interest rates and persistent trade and geopolitical uncertainty are adding to inflation and financing pressures.

At the same time, concerns over the returns on AI investment have emerged as an additional source of volatility.

According to the Institute of International Finance, nonresident portfolio flows to emerging markets recorded $33.8 billion in outflows in October, following $19.3 billion in September, with the pullback concentrated in equities, particularly in Asia.

Unlike earlier episodes of pressure, Moody’s said the October outflows occurred even as US Treasury yields fell and the dollar was broadly stable.

“As investors become more selective, economies with strong domestic growth drivers, credible policy frameworks and solid buffers should remain relatively resilient”, it explained.

Inflation to Moderate  

Moody’s continued that headline inflation has picked up again across major advanced economies as higher energy costs feed into consumer prices.

“We expect energy and other supply pressures to keep inflation volatile and sticky in 2027, but tighter monetary policy and increasingly price-sensitive consumers will limit broader pass-through to other prices. Inflation should gradually moderate through 2028”.

For central banks, Moody’s said this means limited hikes to keep inflation expectations in check rather than a prolonged tightening cycle.

It added that major advanced economy central banks have taken a firmer stance over the past three months as renewed inflation pressures complicate their policy outlooks. “The Fed, European Central Bank (ECB) and Bank of Japan (BoJ) each raised rates by 25 basis points (bp) in September and the Bank of England (BoE) followed with a 25 bp hike in November”.

“We expect one more increase each from the Fed, ECB and BoE before year-end, and potentially another Fed hike in the first quarter of 2027 if inflation stickiness in services persists. Provided inflation trends improve through 2027, central banks should be in a position to pivot to easing by the second half of 2027”.

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