Markets & Money 2026

The Baseline: Slower, Stickier, More Fragmented

In 2026, the world economy is not falling apart. It is grinding forward.

The International Monetary Fund's latest projections show global growth hovering around 3.2 percent in 2025 and 3.1 percent in 2026, slower than the pre-pandemic average but far from crisis territory. Emerging and developing economies still grow faster than the rich world, but by a narrower margin than the "BRICS boom" years.

Inflation has retreated from the post-COVID peaks, yet policy rates remain well above the ultra-low levels that defined the 2010s. The age of free money is over; the age of expensive mistakes has begun.

For the Global South, 2026 is a three-speed financial world: some countries are cutting rates into a benign disinflation; some are growing respectably but sitting on fragile foundations; others are trapped between high debt, weak currencies, and an unforgiving bond market. The distinction matters enormously for investors, policymakers and businesses navigating emerging-market risk.

This briefing maps that landscape — not as a prediction of exact numbers, but as a decision tool for anyone managing risk, capital or policy in the Global South. It draws on the IMF's October 2025 World Economic Outlook, supplemented by Article IV consultations completed through December 2025, including the Fund's mission to Beijing (December 1 to 10, 2025). Unusually, IMF Managing Director Kristalina Georgieva personally joined discussions and met with Premier Li Qiang, signaling the strategic importance of China's rebalancing to global financial stability. The mission produced upward revisions to China's growth outlook but also pointed to deeper structural challenges in the world's second-largest economy.

The IMF's October 2025 World Economic Outlook sketches key parameters:

• Global output: about 3.3 percent in 2024, easing to 3.2 percent in 2025 and 3.1 percent in 2026, well below the 3.8 to 4.0 percent average of the early 2000s.
• Advanced economies: roughly 1.7 to 2.0 percent growth, constrained by ageing populations, high public debt, and tighter monetary policy.
• Emerging and developing economies: growth a bit above 4 percent, still the engine of global expansion but with less clear outperformance than in the pre-GFC era.
• Inflation: global headline inflation projected to fall from around 6.8 percent in 2023 to about 4.7 percent in 2024 and move closer to central bank targets by 2026, though with big regional variation.

Three structural shifts frame 2026:

Higher-for-longer real rates. Even once rate-cutting cycles are underway, the cost of money is unlikely to return to the near-zero real rates of the 2010s. Public debt is higher, demographic tailwinds weaker, and geopolitical risk premia larger.

Fragmenting capital flows. The post-1990 pattern of "Wall Street sets the tone, everyone else adjusts" is fraying. Sanctions, capital-controls debates, and new regional lenders (Gulf funds, China's policy banks, BRICS institutions) are changing who finances whom.

Balance-sheet scars. Pandemic spending, energy shocks, and currency swings have left many sovereign balance sheets thinner. Some countries can live with higher rates; others cannot.

Three Financial Regimes for 2026

Rather than obsessing over a single global forecast, investors and policymakers in the Global South need to think in regimes. For 2026, three stand out.

Regime A: Disinflation with Room to Cut

India, Indonesia, Mexico, Brazil, Gulf economies, Vietnam, parts of East Africa

In this group, inflation has fallen back towards target and real policy rates are positive but not punitive. Central banks that hiked early in 2021 to 2023 — notably in Brazil, Mexico and much of Latin America — have already begun cautious rate cuts, while India and Indonesia maintain relatively high real rates amid decent growth.

The IMF expects India to remain one of the fastest-growing major economies, with real GDP growth around the mid-single digits in 2025 to 2026, supported by strong investment and domestic demand. Indonesia is projected to hold growth near 5 percent, helped by commodity exports and downstream industrial policy.

Latin American central banks (Brazil, Chile, Colombia) were among the first to raise rates and are now cautiously cutting as inflation normalises from double-digit peaks. In the Gulf, inflation has been relatively subdued, but large fiscal and current account surpluses allow accommodative spending even at higher global rates.

Local-currency bond markets in these countries look increasingly attractive to global investors seeking positive real yields without outright crisis risk. Equity markets in India, Indonesia, Mexico and the Gulf stand to benefit if the US rate-cutting cycle progresses and risk appetite improves.

This is the "relative safe haven" segment within the Global South: not risk-free, but with policy credibility, functioning local bond markets and reasonably predictable inflation dynamics.

Regime B: Strong but Fragile

China, Türkiye, Saudi Arabia, South Africa, parts of Central Asia

The second group is growing at respectable rates but carries deep structural vulnerabilities — property bubbles, high domestic leverage, fiscal rigidities, or external dependence.

IMF staff now project China's growth at 5.0 percent in 2025 and 4.5 percent in 2026, upward revisions of 0.2 and 0.3 percentage points respectively from the October World Economic Outlook, driven by policy stimulus measures and lower-than-expected tariffs on China's exports. Yet the property downturn, local-government debt and weak consumer confidence have created deflationary pressures: headline inflation is expected to average 0 percent in 2025, rising only to 0.8 percent in 2026.

Low inflation relative to trading partners has led to real exchange rate depreciation, contributing to strong exports and a current account surplus projected to reach 3.3 percent of GDP in 2025. But China's large economic size and heightened global trade tensions make reliance on exports less viable for sustaining robust growth. The authorities recognize this and have implemented expansionary fiscal policy, monetary easing and local government debt swaps to ease refinancing pressures. They have also raised the retirement age (gradually moving from around 60 to 63-65 over time) to lift potential growth.

Yet the Fund judges the transition to a consumption-led growth model requires more forceful action across three interdependent priorities. First, tackle imbalances through more aggressive macroeconomic stimulus combined with reforms to reduce elevated household savings. Chinese households save excessively — not just from cultural preference but from precautionary motives amid weak social protection for healthcare, education and retirement. This savings trap is partly generational: youth unemployment remains elevated (reaching over 20 percent before official statistics were suspended in 2023), and when young people cannot find work due to skill mismatches (too many university graduates, too few vocational workers), their parents save even more to support them.

Second, ensure macro-financial stability by restructuring unsustainable local government financing vehicles (LGFVs) — off-balance-sheet borrowing entities that accumulated an estimated $9-13 trillion in debt funding infrastructure. The Fund now recommends using insolvency frameworks for restructuring, which reduces fiscal strain but creates a dilemma: banks hold much of this debt, so restructuring risks financial-sector spillovers. How Beijing manages this cleanup — protecting banks versus imposing losses — will shape credit conditions across the economy. The fiscal path is delicate: expand now to combat deflation, but consolidate later once deflationary pressures have durably abated to stabilize government debt. Premature fiscal tightening risks Japan-style stagnation.

Third, lift medium-term growth through structural reforms. Productivity is constrained by internal fragmentation: despite being a single country, China maintains barriers to internal trade as provinces protect local champions. The services sector (healthcare, education, finance) remains heavily restricted. State-owned enterprises receive preferential access to credit and contracts relative to more productive private firms, a pattern the Fund calls "competitive neutrality" failure. The authorities have begun addressing "involution" — excessive price competition in sectors like electric vehicles and solar panels where industrial policy created overcapacity — but broader reforms lag.

The IMF estimates that progress across all three priorities could lift China's GDP by about 2.5 percentage points by 2030 and reduce external imbalances. The catch: these priorities are interdependent. LGFV restructuring without fiscal framework reform creates future moral hazard. Household savings cannot fall if social protection remains weak. Productivity cannot rise if SOEs continue to crowd out private firms. Without comprehensive, sequenced reforms, the risk of a slower medium-term path remains very much alive.

After years of unorthodox monetary policy and high inflation, Türkiye's current tightening cycle is trying to restore macro-credibility. But real rates, dollarisation risk, and external financing needs still leave Turkish assets exposed to sudden stops.

Oil-linked growth, large sovereign wealth funds and dollar pegs provide stability for Saudi Arabia and Gulf producers, but fiscal outcomes remain highly sensitive to oil prices and to the speed of the global energy transition.

South Africa's growth remains anaemic due to power shortages, logistics failures and governance issues. Debt-to-GDP is high, and bond markets price a premium for reform uncertainty.

These are markets where headline numbers can look fine — decent growth, manageable current-account deficits — but risk lies in the balance sheets: state-owned enterprises, local government financing vehicles, or highly dollarised banking systems.

Regime C: Crunch Zones

Pakistan, Egypt, Nigeria, Kenya, Ghana, Argentina and others

The third group faces tight external constraints: large refinancing needs, heavy reliance on short-term or foreign-currency debt, and limited access to private markets except at punishing spreads.

In Pakistan and Egypt, external debt service relative to exports and fiscal revenues is elevated, and IMF programmes are central to keeping the wheels turning. Several African currencies — including the Nigerian naira and Kenyan shilling — have experienced sharp depreciations and episodes of parallel-market fragmentation, feeding domestic inflation and eroding real incomes. Countries such as Ghana and Zambia have gone through or are negotiating restructurings, with Eurobond access constrained until credible deals are in place.

In these crunch zones, 2026 is not about fine-tuning the policy rate. It is about sequencing survival: negotiating with multilateral lenders, managing FX reserves, rationing imports and preventing social unrest as austerity bites.

Rates, FX and the Geography of Capital

Three macro-financial axes will define markets and money in 2026.

The Global Rate Cycle

As inflation falls, most major advanced-economy central banks are expected to ease gradually in 2025 to 2026. Markets price a path where policy rates settle above the zero-rate era but below the 2023 peaks.

For the Global South this implies that "early hikers" with credibility (large Latin American economies, a few in Emerging Asia) can cut earlier and deeper without destabilising their currencies. Countries that lagged the tightening cycle, or that monetised deficits, may be forced to keep real rates painfully high to stabilise FX and inflation expectations. Frontier and distressed sovereigns will see little relief: even if US and euro-area yields fall, risk premia and ratings ceilings will keep borrowing costly.

Exchange Rates and De-Dollarisation Experiments

2022 to 2023 saw several EM currencies sell off sharply; 2024 to 2025 brought partial reversals and a more nuanced picture. Asia remains relatively anchored, though the yen and renminbi have both faced episodes of depreciation pressure amid divergent policy cycles and capital outflows. For China specifically, the Fund judges that greater exchange rate flexibility — allowing the yuan to adjust more freely to weak domestic demand — would help reflate the economy by making imports more expensive and easing real interest rates. Yet the People's Bank of China has kept depreciation gradual to avoid capital flight, meaning the adjustment to domestic weakness is slower and the current account surplus stays elevated. In Africa, FX shortages, multiple exchange-rate windows and sudden devaluations remain a recurring pattern, from Nigeria to Ethiopia. Latin American currencies, after large real appreciations post-COVID, retain some valuation buffer relative to EM peers.

BRICS expansion and bilateral trade agreements have sharpened the conversation about local-currency invoicing and de-dollarisation. The signal is politically important, but the plumbing is still overwhelmingly dollar-centric. The US dollar still accounts for the majority of global FX reserves and trade invoicing. New regional arrangements (BRICS mechanisms, Gulf-Asia investment corridors, local-currency swap lines) are growing, but they complement rather than replace the dollar system for now.

For Global South treasuries and corporates, 2026 will still be a world where dollar risk has to be actively managed, even if more transactions are booked in yuan, rupees or riyals at the margin.

Capital Flows and New Gatekeepers

Traditional lenders — the IMF, World Bank, Western development banks — remain central. But the map of capital gatekeepers is changing. Gulf sovereign wealth funds (Saudi PIF, UAE's ADQ and Mubadala, Qatar's QIA) are now among the most active financiers of infrastructure, ports, logistics and data centres across Africa and Asia. China's Belt and Road lending has slowed in volume but shifted toward more targeted, strategic assets and restructurings rather than fresh mega-loans. Private markets — infrastructure funds, private credit, blended-finance vehicles — are filling part of the gap left by shrinking commercial bank balance sheets, but often at higher cost and with tougher covenants.

For many Global South governments in 2026, the real question is no longer "Will we tap global markets?" but "On whose terms — and in which currency?"

The Meridian Heatmap: 20 Core Economies

Rather than pretend to forecast to the second decimal place, The Meridian groups 20 key Global South players into a qualitative heatmap for 2026.

This table is deliberately qualitative: it is meant as a map of regimes, not a quantitative forecast.

What to Watch in 2026: Five Signals

For decision-makers across the Global South, five signals matter more than any single forecast:

US and euro-area rate cuts vs core inflation. Faster-than-expected disinflation could ease global financial conditions; sticky services inflation could force central banks to keep rates high longer.

China's rebalancing execution. Whether Beijing accelerates reforms to unlock consumption will shape commodity demand, Asian supply chains and regional currencies. The IMF's December 2025 assessment identifies three interdependent priorities: tackling imbalances (household savings reforms, social protection expansion), ensuring macro-financial stability (LGFV debt restructuring, fiscal framework reforms), and lifting productivity (opening services, leveling the SOE playing field, addressing skill mismatches). The Fund estimates comprehensive execution could lift GDP by 2.5 percentage points by 2030.

Key signals to watch: How Beijing restructures local government financing vehicles (bailouts versus haircuts signals moral hazard tolerance); whether exchange rate flexibility increases (allowing the yuan to adjust more freely would signal serious commitment to rebalancing); and whether youth unemployment data resumes publication (transparency signals confidence). The current account surplus (3.3 percent of GDP in 2025) is the ultimate scorecard: widening means export-led overcapacity continues, narrowing means consumption-led rebalancing is working.

For the rest of the Global South, this matters immensely. A consumption-driven China imports more commodities and competes less aggressively on manufactured exports. An investment-driven China floods global markets with industrial overcapacity in electric vehicles, solar panels, steel and chemicals — undercutting producers from Indonesia to Brazil to South Africa.

Gulf capital deployment. The pace and scale at which Gulf sovereign funds deploy into infrastructure, ports, renewables and data centres across Africa and Asia will influence who can finance what — and under which geopolitical umbrellas.

Debt-restructuring norms. How quickly and predictably restructurings in Zambia, Ghana and others are resolved — given the complex creditor mix of China, bondholders, multilaterals and Gulf lenders — will set precedents for the next wave of cases.

Climate shocks hitting balance sheets. Severe floods, heatwaves or storms that damage infrastructure can move sovereign spreads as surely as missed fiscal targets. Where climate and credit data are integrated, risk pricing will change rapidly.