Due to materialization of some of the downside risks that S&P Global Ratings previously outlined, we lowered our 2023 growth projections for key emerging market (EM) economies, according to a report published titled "Emerging Markets Monthly Highlights: Navigating Through Increasing Uncertainty". We also slightly upgraded our 2022 growth projections on better-than-expected Q2 performance. However, growth has already started to decelerate, and we expect this trend to continue. We have also raised sharply our median inflation forecast for key EMs to 5.6% for 2023 from 4.1% in our June forecast.

The balance of risks for EMs remains firmly on the downside. Resolution of the Russia-Ukraine conflict seems far off, while risks of the Fed's more aggressive tightening and China's slower growth are still in place. We estimated that the materialization of these risks (for example, a surge in energy prices and further monetary tightening in the U.S.) could cause several LatAm and EM EMEA economies to contract in 2023.

Yields have notably increased. Despite some easing in August, both corporate and government yields have started increasing in September across most EMs in line with our expectations. Yields have increased across most of LatAm (following the recent U.S. monetary tightening) and EM EMEA (due to escalation of the Russia-Ukraine conflict and ongoing gas-supply disruptions). A strengthening dollar and tightening of global financing conditions remain key risks for EMs, and we expect challenging environment to remain in the nearest term.

Exchange rates among some EMs appeared to be more resilient than those in developed markets (DMs), particularly among commodity exporters in LatAm and EM Asia. However, we expect pressure on EM currencies to intensify in the coming months, as external environment remains difficult, current accounts are currently deteriorating, and some EM economies seem to approach the end of their tightening cycles, particularly in LatAm.