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Emerging market (EM) GDP growth will remain below potential in 2024, with average rates of 4.1% in 2023 and 3.7% in 2024, according to Moody's Investor Service.
Although financial conditions will ease gradually in 2024, the effects of higher-for-longer interest rates will curb growth and liquidity across EMs, the ratings agency said in its 2024 outlook on EMs.
"We expect bond yields to decline and the US dollar to soften. However, debt affordability ratios will deteriorate across EMs as a whole as borrowers refinance and add new debt stock at higher absolute rates."
As a result, debt sustainability risks for both frontier sovereigns and lower-rated nonfinancial companies will remain high.
Geopolitical polarization will widen, Moody's said, adding that EMs are highly exposed to rising tensions. High living costs, food security risks and physical climate risks will keep social tensions high in many countries.
As for oil exporters such as Saudi Arabia (A1 positive), the rating agency expects production cuts to reverse in 2024, with growth following thereafter.
Earlier this month, the Saudi Ministry of Energy announced that the kingdom will continue the voluntary cut of one million barrels per day, which was implemented in July and was extended until December-end.
Moody's believes inflation will continue to slow across EMs and expects interest rate cuts in most countries in 2024. Nevertheless, the pace and timing of the cuts will vary.
Rate cuts in Turkey, Egypt and Nigeria are not expected until the end of 2024 or even into 2025.
(Editing by Brinda Darasha; brinda.darasha@lseg.com)