Emerging market and developing economies are expected to experience a moderation in economic growth in 2026, followed by a potential improvement the following year. Their performance will depend on several interconnected factors, including commodity prices, global financing conditions, domestic economic policies and their participation in technology-driven industries.

The International Monetary Fund (IMF) projects that growth across emerging market and developing economies will slow to 3.7% in 2026 before rising to 4.4% in 2027, according to the figures highlighted in its economic outlook material. The projections point to an uneven recovery in which countries’ economic structures and ability to manage external pressures will influence their individual outcomes.

The anticipated improvement in 2027 offers a more positive medium-term prospect, but the outlook also highlights the challenges facing countries seeking to sustain investment, create employment and strengthen economic resilience.

Why Economic Growth Is Expected to Slow

Emerging and developing economies do not form a single, uniform economic group. They include commodity exporters, manufacturing centres, service-based economies and countries that rely heavily on agriculture or tourism.

Their growth prospects can therefore respond differently to the same international development. A decline in commodity prices may benefit countries that import energy and raw materials while reducing export earnings for countries that depend on selling those resources.

Changes in global interest rates can also influence economic performance. When international borrowing becomes more expensive, governments and businesses may face higher financing costs, potentially limiting investment and increasing pressure on public budgets.

These conditions can affect infrastructure projects, employment and consumer demand. Countries with limited fiscal flexibility or substantial external financing requirements may have fewer options for responding to an unexpected economic shock.

The projected slowdown underlines the importance of understanding the particular vulnerabilities of each economy rather than relying on a single explanation for weaker growth.

Commodity Dependence Creates Different Economic Risks

Natural resources remain important sources of income for many developing countries. Oil, natural gas, metals and agricultural commodities can generate export revenue, attract investment and provide governments with funds for public spending.

However, dependence on a narrow range of exports can expose national economies to sharp price fluctuations. When global demand weakens or supply conditions change, commodity prices can fall, reducing export receipts and government revenue.

Countries that depend heavily on imported fuel or industrial materials face a different set of challenges. Rising import costs can increase inflationary pressure, weaken trade balances and place additional demands on foreign exchange reserves.

Diversifying production and exports can help reduce these risks. Investment in manufacturing, modern agriculture, tourism and business services may create additional sources of income and employment.

Better resource management is equally important for commodity exporters. Transparent revenue systems, prudent public spending and appropriate financial reserves can help governments manage periods of unusually high or low commodity prices.

Global Financial Conditions Remain a Major Influence

Access to affordable finance is essential for developing economies seeking to expand infrastructure, improve public services and encourage private investment.

Yet these countries can be sensitive to changes in international financial markets. Higher borrowing costs, shifts in investor confidence and currency volatility can make it more difficult to obtain funding.

When global investors become more cautious, capital flows to emerging markets may weaken. Governments and companies with substantial foreign-currency obligations can face additional pressure if their domestic currencies depreciate.

Debt-servicing costs can also absorb resources that might otherwise support education, healthcare, transport and productive investment.

The scale of these effects depends on each country’s debt structure, financial reserves, export earnings and access to domestic capital markets.

Strengthening debt management, developing local financial markets and maintaining credible monetary and fiscal frameworks can improve resilience. Countries also benefit from transparent economic data and predictable regulations that help businesses and investors assess risks more accurately.

Domestic Policy Frameworks Can Shape Recovery

Economic conditions abroad matter, but domestic decisions also influence how effectively countries respond to uncertainty.

Sound monetary policy can help maintain price stability and protect confidence in national currencies. Responsible fiscal management can preserve the government’s ability to respond when economic conditions deteriorate.

Structural reforms may also improve productivity by reducing unnecessary administrative barriers, strengthening competition and making it easier for businesses to invest and expand.

Investment in transport, electricity, digital infrastructure and education can support long-term development, particularly where inadequate services prevent firms from reaching customers or operating efficiently.

However, policy choices need to reflect national circumstances. Countries with different inflation rates, debt levels and labour-market conditions may require different approaches.

The challenge is to maintain macroeconomic stability while creating conditions for productive investment and inclusive growth.

Technology Value Chains Offer New Opportunities

A country’s position in the global technology value chain is becoming an increasingly important factor in its economic prospects.

Technology value chains include the activities required to research, design, manufacture, assemble, distribute and maintain technology products and services. These activities range from advanced semiconductor production and electronics manufacturing to software development, data services and technical support.

Countries that participate in higher-value activities may gain opportunities to improve productivity, develop specialised skills and attract investment.

Digital services can also allow businesses in developing economies to serve customers internationally without relying entirely on traditional exports of physical goods.

However, participation in technology-driven industries is not automatic. It depends on reliable electricity, broadband connectivity, skilled workers, access to finance, research capacity and a business environment that supports innovation.

Countries concentrated in low-value activities may receive fewer benefits from technological expansion than those able to develop domestic expertise and move into more sophisticated production.

Governments can support this transition through education, vocational training, research partnerships and infrastructure investment. Policies should encourage businesses to develop capabilities over time rather than depend indefinitely on a narrow range of activities.

Why the 2027 Growth Projection Matters

The projected increase in growth from 3.7% in 2026 to 4.4% in 2027 suggests an improvement in the aggregate outlook for emerging market and developing economies.

A stronger expansion could create opportunities for businesses to increase production, governments to strengthen revenue collection and workers to find new employment.

Nevertheless, the forecast should not be interpreted as a guaranteed recovery for every country. Aggregate figures can conceal significant differences between economies, and individual results may diverge because of domestic conditions or unexpected external developments.

The pace of recovery will depend partly on financing availability, investment decisions, trade conditions and the ability of governments to manage economic vulnerabilities.

Countries that strengthen their productive capacity and reduce excessive dependence on volatile sources of income may be better positioned to benefit from improving global conditions.

Building More Resilient Developing Economies

The projected slowdown highlights the importance of moving beyond short-term responses to economic pressure. Developing economies need strategies that support immediate stability while improving their capacity to generate sustainable growth.

Diversifying exports can reduce exposure to individual commodity markets. Improving public financial management can help contain debt risks, while stronger domestic institutions can increase confidence in economic policy.

Investment in education, technology and infrastructure can expand productive capacity and help businesses participate in higher-value activities.

Regional cooperation may also support development by improving transport links, facilitating trade and creating larger markets for local producers.

These priorities require careful implementation and sustained investment. They cannot eliminate global uncertainty, but they can help countries respond more effectively when external conditions become less favourable.

Conclusion

The IMF’s growth projections point to a challenging year for emerging market and developing economies in 2026, followed by an anticipated improvement in 2027. Commodity dependence, exposure to international financing conditions, domestic policy frameworks and participation in technology value chains will all influence the direction and strength of individual economies.

The expected recovery offers an opportunity for governments to strengthen economic foundations and improve resilience against future shocks. Achieving lasting progress, however, will require more than a temporary increase in growth.

Diversified production, responsible financial management, investment in human capital and greater technological capabilities can help developing economies create more stable sources of prosperity.