Mexico’s proximity to and economic integration with the U.S., and Vietnam’s cost competitiveness, have made them the clearest beneficiaries of changing U.S. trade relations, exporting more to the U.S., and greater demand for their manufacturing. Mexico became the main trading partner of the U.S. in 2023, surpassing Canada and China. Rising exports and higher FDI inflows have supported the improvement of Vietnam’s sovereign credit profile over several years.
Central America is also poised to benefit from nearshoring, although the small size of the region’s economies restricts their capacity to absorb extensive investment projects, which may be limited to niche sectors. Costa Rica appears well placed, given high value-added manufacturing capacity and relatively better infrastructure.
Among other Asian economies, India’s expanding consumer market and vast labor force could make it an alternative destination to China. Indonesia’s mineral resources could encourage FDI in electric vehicles and batteries, while Malaysia is attracting FDI in the tech sector.
Emerging European countries benefit from closeness to the core eurozone economies due to their infrastructure and labor force advantages. Central and eastern European countries are well integrated in global value chains, providing significant value added to exports and attracting further investment in areas ranging from semiconductors to automobiles. A crucial test is whether economies can sustain high productivity growth and overcome adverse demographics.
Some emerging markets should see incremental improvements in economic, fiscal, external and structural metrics in our Sovereign Rating Model as the benefits of higher exports and FDI gradually materialize. This could contribute to gradual upward rating pressure in some cases, all else being equal. However, the magnitude, timing and breadth of these effects is uncertain.
