Emerging Markets Signal a Trade-Led Inflection as Export Demand Rebounds

Executive Summary

• Emerging markets entered the final quarter of the year with a notable shift in momentum.
• November PMI data point to a renewed recovery in export demand, easing cost pressures, and steady, though cautious, output growth.
• While confidence remains fragile and hiring subdued, the underlying macro signals suggest that emerging economies may be better positioned for an improvement in global trade conditions heading into 2026, especially relative to developed markets.

Export Demand Shows the First Meaningful Turn Since the Trade Shock

November PMI readings marked a clear turning point for emerging markets, with new export orders returning to expansion after a brief setback in October. More importantly, the pace of growth was the strongest since February—before US tariff announcements disrupted global trade flows and weighed heavily on manufacturing activity through the middle of the year.

This recovery is not isolated. Both manufacturing and services firms reported renewed increases in foreign demand, with services leading the rebound and registering the fastest growth rate in nine months. This broad-based improvement suggests that the recovery in trade is becoming more structural rather than purely cyclical.

The contrast with developed markets is striking. While emerging markets are seeing early signs of stability and recovery, developed economies continue to experience persistent declines in new export business, extending a multi-year downtrend. This divergence reinforces the idea that global demand dynamics may be shifting incrementally in favor of select emerging economies.

Regional Divergence Beneath the Surface

At a country level, the picture remains uneven. India once again recorded the strongest expansion in manufacturing export orders, although momentum softened to its weakest pace in over a year. China, meanwhile, returned to modest expansion territory—an important signal given its central role in global supply chains. Central European economies such as Czechia and Poland also saw renewed growth, reflecting improving regional trade links.

In contrast, Brazil stood out on the downside, with manufacturers reporting sharp declines in export demand. Survey responses pointed directly to the adverse effects of US tariffs, underscoring how trade policy fragmentation continues to generate asymmetrical outcomes across emerging markets.

Services Carry Growth as Manufacturing Lags

Rising export orders translated into a further increase in total new business, supporting ongoing expansion in overall activity. November marked the thirty-fifth consecutive month of growth in emerging market output, highlighting underlying resilience despite repeated external shocks.

That said, the composition of growth matters. Services activity accelerated to a three-month high, becoming the primary engine of expansion. Manufacturing output, by contrast, grew only marginally and at the slowest pace in the current growth sequence. This imbalance suggests that domestic and externally driven services demand is compensating for a manufacturing sector still adjusting to post-tariff trade conditions.

Inflation Dynamics Offer a Competitive Advantage

One of the most constructive elements of the November data lies in inflation. Input cost pressures across emerging markets eased further, with cost growth slowing to a five-month low and on track for the weakest annual average since at least 2019. Both manufacturing and services firms benefited from this subdued cost environment.

This stands in sharp contrast to developed markets, where input costs accelerated rapidly in November, driven largely by rising US price pressures. For emerging markets, lower cost inflation has allowed firms to limit price increases, supporting competitiveness and helping sustain demand. Manufacturers, in particular, held output prices unchanged for a second consecutive month.

From a macro perspective, this pricing discipline enhances the relative appeal of emerging markets in a global environment where inflation differentials increasingly influence capital flows, currency dynamics, and trade competitiveness

Confidence and Hiring Remain the Missing Link

Despite improving demand and favorable inflation dynamics, business confidence remains restrained. Firms have yet to fully recover sentiment lost after the April tariff announcements, and this hesitation is clearly reflected in labor market behavior.

Employment levels edged lower again in November, marking the third contraction in four months. Aggregate PMI employment indicators suggest broadly stable workforce numbers over the course of 2025, rather than a meaningful expansion. Companies appear willing to absorb higher workloads through productivity gains rather than committing to new hires—an understandable stance given lingering uncertainty around trade policy and global growth.

Macro Outlook: A Conditional Upside for 2026

Looking ahead, the trajectory of emerging markets will depend on whether the recent improvement in export demand can be sustained. Continued stabilization in global trade conditions and further gains in new business volumes would likely translate into stronger confidence, unlocking hiring and accelerating growth.

For now, the signal is cautiously constructive. Emerging markets are showing early signs of regaining external demand momentum while maintaining a cost advantage over developed economies. If trade volatility continues to ease, this combination could form the foundation for a more durable upswing as the global economy moves into 2026.

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