The pace of credit expansion in key emerging markets has eased markedly in 2025, reflecting shifting macroeconomic conditions and policy responses around the globe.

Understanding the forces behind this slowdown is vital for investors, policymakers, and businesses seeking to navigate a landscape defined by high borrowing costs, trade uncertainties, and fiscal adjustments.

Overview of Global Credit Trends

Global economic growth is projected at about 3% in 2025, down from previous years, as major economies such as the U.S. and China experience slower momentum. Emerging markets (excluding China) have seen a revival in credit cycle indicators, while China’s metrics continue to fall.

The S&P Global Ratings’ Credit Cycle Indicator (CCI) illustrates a clear divergence: most emerging economies appear to be exiting a trough in credit conditions, whereas China remains in the grip of a prolonged credit correction.

Drivers of Credit Growth Deceleration

The slowdown in credit growth across these markets is attributable to several interrelated factors:

• Sustained high interest rates globally, which have kept borrowing costs elevated above pre-pandemic levels and dampened demand for new loans.
• Tighter fiscal policy and reduced government spending, especially in infrastructure-heavy sectors, leading to contractions such as the 2.3% decline in Latin America’s construction activity through September 2024.
• Household deleveraging due to economic uncertainty, as consumers prioritize savings and debt reduction in response to weaker purchasing power and inflation concerns.

Regional Divergences in Credit Cycles

Not all emerging markets are moving in lockstep. The following table highlights regional outlooks and key data points for 2025:

Policy Influences and Market Forces

The global monetary stance remains restrictive, though a cycle of rate cuts has begun among some central banks. Lending rates, however, remain above pre-pandemic averages, offering only limited relief.

Trade policy also looms large. The U.S. imposed an additional 10% tariff on all Chinese imports in February 2025, and ongoing tariff adjustments affecting Mexico and Canada have injected further uncertainty into trade-financed credit flows.

• Initial easing of monetary conditions has spurred modest corporate borrowing, particularly in Germany and select EMs.
• Elevated interest rates in real estate amplify risks in property markets but systemic threats remain contained by resilient banking systems.

Sectoral Dynamics and Risks

Credit growth patterns differ sharply by borrower type:

• Household borrowing remains subdued as consumers focus on reducing outstanding debt and face tighter credit terms.
• Corporate credit shows tentative improvement as firms tap debt markets to fund working capital and capex with slightly more favorable lending spreads.

Private credit and real estate markets exhibit heightened sensitivity to rate fluctuations. Although private credit exposure in EMs is modest, ongoing regulatory shifts and rising yields could affect access and valuation dynamics.

Risks and Forward-Looking Issues

Several risks could derail a sustained credit recovery. Geopolitical tensions, notably U.S. trade policy shocks, threaten to disrupt supply chains and financing conditions. The prospect of inflation resurgence also poses a wildcard for central banks considering further rate adjustments.

Public debt in emerging markets stands at around 70% of GDP and is projected to climb to 83% by 2030. This trajectory heightens vulnerability to external shocks should global financing costs rise again, underscoring the need for careful fiscal management.

Political cycles in many EMs, with elections on the horizon, introduce additional unpredictability into policy regimes and spending priorities. The timing and scale of fiscal tightening expected from 2026 onwards will be critical for credit growth momentum.

Conclusion: Navigating the Next Phase

The deceleration in credit growth across key emerging markets reflects a complex interplay of monetary restraint, fiscal prudence, and trade uncertainties. While China’s continuing credit correction highlights structural headwinds, some regions show tentative signs of recovery.

Stakeholders should monitor three critical factors: the pace of interest rate normalization, the evolution of trade policies, and the trajectory of public debt sustainability. Together, these elements will shape the path of credit cycles and determine where the next opportunities—and risks—lie.

By staying informed and adaptable, investors and policymakers can position themselves effectively in a world where credit dynamics are evolving rapidly and resilience will be rewarded.