Emerging-market macro outlook and cross-asset markets: Goldman Sachs sees EM weathering higher energy prices and G4 yields, with inflation and rate-hike fears overstated.

Overview

This global EM macro outlook assesses how emerging economies and markets are absorbing renewed energy-price volatility and higher G4 bond yields. Goldman Sachs concludes that the inflation and policy-tightening risk priced into many EM rate markets is too pessimistic, although energy supply disruption remains the principal uncertainty.

Core views

The report frames the outlook around two traditional EM headwinds: high and volatile energy prices and higher G4 bond yields. Oil fell to $70/bbl in late June after the US-Iran memorandum of understanding, then rebounded as the agreement broke down and broader-hostility risks increased. Persian Gulf oil exports have recovered to roughly 70–80% of pre-war volumes, while China has reduced imports in response to higher prices, helping stabilize the global balance. However, the remaining supply shortfall is drawing down inventories; curtailed Gulf supply could push crude substantially higher, and reduced refining capacity in the Gulf and Russia has lifted diesel and gasoline prices more than crude. Higher G4 yields have not produced the historical-scale EM bond selloff. EM local yields have continued to converge with G4 yields, partly because fiscal concerns and reassessment of Japanese monetary policy are market-specific drivers of the G4 move. Global AI-related investment is also raising growth expectations and the cost of capital more broadly. The report identifies the US dollar as the key transmission variable: the dollar has so far remained weak against most EM currencies, limiting spillovers from higher G4 yields. Goldman Sachs finds aggregate EM growth slightly above potential. Stronger sequential growth in EM Asia excluding China, Latin America and CEEMEA offsets weaker-than-potential activity in China. Faster developed-market growth and strong DM final demand are presented as supports for continued EM resilience. China remains bifurcated: exports are strong, but domestic demand is soft amid a prolonged housing downturn, slowing infrastructure investment and constrained local-government finances. The report expects Chinese exports to remain solid through 2026 and beyond, while CPI and PPI inflation remain subdued at 0.8% year-on-year and 3.8% year-on-year, respectively. EM inflation has remained materially more contained than feared following the Iran conflict. The report attributes this to limited pass-through from wholesale to retail fuel prices through subsidies, taxes and regulated prices; unusually weak food inflation supported by abundant agricultural supply in the first half; negative output gaps in most EM economies; and resilient EM exchange rates supported by healthy external balances. Some factors, especially weak food inflation, may be temporary, but Goldman Sachs views the negative output gaps and strong FX backdrop as more durable disinflationary forces. On that basis, Goldman Sachs argues that rate markets are pricing too much tightening over the next one to two years. It notes that the pre-shock inflation backdrop was exceptionally weak, spare capacity constrains domestically generated inflation, and stable exchange rates reduce imported-inflation pressure. Several EM central banks have eased since the conflict began and rates elsewhere rose by less than markets had expected. The report expects the median EM policy rate to rise modestly in the short term before declining in 2027, with easing expectations delayed to mid-2027. Regional divergence remains important. In Asia, Taiwan and Korea benefit from technology exports and strong current-account surpluses, while India and several Southeast Asian economies face weaker currencies, current-account deficits, higher inflation or energy-subsidy costs, and higher yields. Goldman Sachs expects scattered rate hikes in Korea, India, Indonesia and the Philippines. In CEEMEA, the report remains relatively dovish on rates, particularly in the CEE-3 and South Africa, because inflation is subdued, output gaps remain negative, currencies are stable and policy rates were already above neutral. In Latin America, it cuts its 2026 growth forecast by 20bp to 1.8%, citing weak activity in Argentina, Brazil and Chile; it expects inflation risks from energy, US yields and El Niño to persist. For markets, the report remains cautious on outright EM local-rate longs unless energy prices decline, as hike premia may stay embedded in curves. It nevertheless identifies select opportunities, including receiving Hungary five-year and Korea two-year rates and a Poland 2s10s steepener. EM equities have been resilient despite higher yields and energy prices, and Goldman Sachs expects further gains into year-end on solid earnings momentum, although risk appetite may remain muted. It flags CEE equity sensitivity to a prolonged rise in natural-gas prices. It is bullish on frontier FX, particularly EGP, KZT and NGN, citing attractive carry and lower linkage to the uncertain global backdrop. The report also highlights the AI investment boom as a source of divergent Asian outcomes. Top five US hyperscalers are expected to spend $750bn on AI-related capex in 2026, up 80% year-on-year; global investment may be roughly twice that amount. About 60–70% of data-center capex consists of AI servers, storage and networking equipment largely made in Asia. Taiwan’s tech-related exports are estimated to have contributed 5.9 percentage points to real GDP growth last year and are expected to add 4.5pp in 2026; comparable figures for Korea are 0.8pp and 1.0pp. The report sees benefits for external balances but also risks of more unequal, volatile growth and limited employment spillovers. For Korea, AI-led export and capex strength may not translate quickly into consumption because aging is a structural constraint. Goldman Sachs estimates that a 1pp rise in the dependency ratio cuts Korean real private-consumption growth by 10–17bp, versus a 3bp average across major economies. For India, it sees generative AI as a medium-term growth positive: annual labour-productivity growth could rise by around 0.4pp over ten years, with a 0.1pp–0.8pp range. It estimates that 8–12% of non-agricultural employment faces substitution risk, while 42–48% is likely to be complemented by AI.

Analysis framework

Goldman Sachs starts with external shocks—oil prices and G4 yields—then examines their transmission through EM growth, inflation, output gaps, exchange rates and policy-rate pricing. It compares regional macro conditions and projects cross-asset implications, supplemented by focused analysis of AI investment spillovers to Asian exports, growth, currencies, consumption and employment.

Methodology notes

• Industry AnalysisSupply-demand framework

  Oil supply-demand balance and energy-price pass-through

  The report assesses Gulf export volumes, inventories, refining constraints, Chinese import demand and retail-fuel-price controls to explain energy-price risks and inflation transmission.

• Macroeconomics

  Output-gap and inflation-gap analysis

  Goldman Sachs uses estimated negative output gaps and subdued inflation relative to targets to argue that domestic inflation pressure and the need for EM tightening are limited.

• Industry AnalysisUpstream-Midstream-Downstream Transmission

  AI data-center investment spillovers through Asian technology supply chains

  The report traces US hyperscaler capex into Asian production of servers, storage, networking equipment, semiconductors and related exports.

Asset mapping & comparison

Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).

• EM local rates

  Energy volatility and global core yields remain headwinds; Goldman Sachs sees excessive tightening priced in across much of EM.

  Strengths

  Subdued inflation, negative output gaps and stable FX support a less hawkish policy path.

  Weaknesses

  Hike premia may remain in curves without lower energy prices.

  Comparison

  Selectively prefers Hungary and Korea rates rather than broad outright duration.

  Risks

  Another energy-price increase could sustain inflation and rate pressure.

• EM equities

  The aggregate index has remained resilient and Goldman Sachs expects further year-end gains.

  Strengths

  Solid earnings momentum.

  Weaknesses

  Near-term risk appetite may remain muted amid rate and energy volatility.

  Comparison

  Overweight views include Brazil, South Africa, Greece, Hungary, China A-shares and Korea.

  Risks

  Higher natural-gas prices from prolonged flow disruptions could leave CEE equities vulnerable.

• Frontier FX: EGP, KZT, NGN

  Goldman Sachs remains bullish on selected frontier currencies.

  Strengths

  Attractive carry and relative orthogonality to an uncertain global backdrop.

  Comparison

  Most positive on EGP, KZT and NGN.

Key data

• Persian Gulf oil exports70–80% of pre-war volumesRecovered despite partial Strait of Hormuz closure.
• Brent forecast$85/bbl by year-endGoldman Sachs expectation, with upside risk if Gulf supply remains curtailed.
• LatAm 2026 real GDP forecast1.8%Revised down by 20bp in recent weeks.
• Taiwan 2026 real GDP growthIn excess of 11%More than 7pp is expected to come from technology-goods exports.
• Top five US hyperscaler AI capex$750bn in 2026Expected to rise 80% year-on-year.
• India AI productivity effectAround 0.4pp annually over 10 yearsBaseline estimate; range is 0.1pp–0.8pp.

Impact & implications

The report’s central implication is that EM policy-rate pricing may be overly hawkish where inflation starts from a weak base, output gaps remain negative and currencies are stable. It favors selective rather than broad exposure because energy prices, the dollar and regional external balances can produce sharply different outcomes across EM assets.

Risks

• A prolonged curtailment of Gulf crude supply could drive crude prices materially higher as global inventories are drawn down.
• Energy-price uncertainty could keep hike premia embedded in EM local-rate curves.
• A stronger US dollar would intensify spillovers from higher G4 yields into EM markets.
• Prolonged shipping disruptions that lift natural-gas prices could make CEE equities vulnerable during winter.
• AI investment could widen sectoral growth disparities, increase volatility and generate limited employment spillovers.

What to watch

• The path toward a full reopening of the Strait of Hormuz and its effect on Gulf oil supply.
• The US dollar’s response to higher G4 yields and competing fiscal, Japanese-policy and AI-investment forces.
• Whether food inflation rises as fertilizer-price and El Niño effects emerge.
• The timing of EM policy easing, which Goldman Sachs expects to resume in 2027.
• Technology-export momentum and external-balance support in Taiwan, Korea, Malaysia and Singapore.