Higher U.S. tariffs will disrupt companies’ supply chains, and weigh on earnings, Fitch said.
“The impact could be material for some national sectors including Chinese homebuilders, Mexican building materials and diversified industrials, and Latin American airlines,” it noted.
At the same time, even sectors with less direct exposure may be negatively affected.
“Credit pressures may become most evident in emerging markets where tariff effects combine with aggravating factors or add to pre-existing pressures, even if direct U.S. tariff exposures are small,” the report said.
Indeed, emerging markets in general will feel the effect of slowing growth in the world’s major economies.
Fitch now expects global growth to drop below the 2% mark this year. “We forecast Chinese growth to be below 4% this year and next, and U.S. growth to slow to a crawl over 2025,” it said.
Potential aggravating factors include other U.S. policy shifts, such as reduced foreign aid spending and an increasingly hostile approach to immigration — along with tighter global financial markets that are coping with higher U.S. Treasury yields, and U.S. interest rates that may stay higher for longer amid persistent inflationary pressures.
Weaker commodity prices, due to slowing economic growth “will be an important transmission channel to credit metrics” in exporting economies, the report said, but may ease “external liquidity pressures on some oil importers.”
One positive factor is the fact that the “unexpected weakening” of the U.S. dollar in this environment has created more room for emerging market central banks to cut rates — and has, so far, avoided the risk of higher sovereign debt burdens in certain markets, Fitch noted.
