In 2025, climate change poses a profound challenge to emerging markets, threatening economic growth, social stability, and global trade integration. As extreme weather events intensify and global temperatures breach the 1.5°C threshold, emerging economies face unique vulnerabilities due to limited fiscal space, reliance on climate-sensitive sectors, and integration into global supply chains. This article explores the economic impacts of climate change on these markets and strategies to build resilience, with a 5-minute read.
Rising Costs of Climate Disasters
Emerging markets are disproportionately affected by climate-related disasters such as floods, droughts, and storms. In 2024, global climate breakdown drove temperatures above 1.5°C, supercharging extreme weather. The Institute and Faculty of Actuaries warns that without urgent decarbonization, climate shocks could slash global GDP by 50% between 2070 and 2090, with emerging markets facing steeper losses due to their geographic and economic vulnerabilities. For example, the 2011 Thailand floods cost 10% of the country’s GDP, illustrating the devastating impact on economies reliant on agriculture and manufacturing.
In 2025, sub-Saharan Africa and South Asia are particularly at risk, with countries like Papua New Guinea facing macro-critical climate challenges. Weak infrastructure and limited disaster preparedness amplify economic losses, disrupting trade and local livelihoods.
Trade and Supply Chain Disruptions
Emerging markets, deeply integrated into global value chains, face compounded risks from climate change and trade tensions. The IMF notes that dense global supply chains magnify tariff and climate-related disruptions, with intermediate goods crossing borders multiple times. In 2025, trade tensions, such as U.S. tariffs on Chinese goods, exacerbate these challenges, reducing demand for emerging market exports. The IMF downgraded growth forecasts for emerging markets to 3.7% in 2025, citing tariff uncertainty and climate risks.
For instance, a slowdown in China, a manufacturing powerhouse, could ripple through Asian emerging markets, reducing output in textiles and electronics. Conversely, some sectors may expand as firms shift production to bypass tariffs, offering opportunities for countries like India or Brazil.
Challenges in Green Transition
Transitioning to a low-carbon economy is critical but costly for emerging markets. The IMF highlights that securing funding for renewable energy and green technologies is a major hurdle, given limited fiscal space and low financial development. Foreign direct investment (FDI) and official lending are essential, yet climate finance commitments at COP29 fell short. In 2025, making Nationally Determined Contributions (NDCs) more investable is key to attracting private capital.
Carbon pricing, as piloted in Papua New Guinea, can incentivize climate action in energy and forestry but requires robust institutional coordination. Emerging markets must balance mitigation with economic growth, as regulatory shifts may raise short-term costs and consumer prices.
Economic and Social Vulnerabilities
Climate change exacerbates poverty and inequality in emerging markets. Extreme weather reduces agricultural productivity, threatening food security in countries like Brazil and India. Health impacts, such as waterborne diseases from flooding, strain public systems and lower labor productivity. The IMF warns that climate shocks could trap more people in poverty, particularly in hotter, poorer regions.
Fossil fuel-dependent economies, like some in the Middle East or Africa, face severe risks as global demand shifts to renewables. The Carnegie Endowment notes that 21 such economies may see economic contractions of 10–50% during the green transition, requiring reinvention of their economic models.
Strategies for Resilience
To mitigate climate impacts, emerging markets can adopt targeted strategies in 2025:
- Invest in Resilient Infrastructure: Strengthening roads, water systems, and disaster management, as seen in Papua New Guinea’s Climate Policy Diagnostic, boosts economic stability.
- Attract Green FDI: Policy reforms to foster green investment, such as tax incentives for renewable energy, can bridge funding gaps.
- Enhance Regional Cooperation: Stronger trade ties, as suggested by the IMF, can buffer against global shocks.
- Implement Carbon Pricing: Fiscal policies like carbon taxes encourage low-carbon growth while generating revenue for adaptation.
- Upskill Labor: Retraining workers for green industries ensures inclusive growth, reducing inequality.
Conclusion
In 2025, climate change poses a dual threat to emerging markets: immediate economic losses from disasters and long-term challenges from the green transition. While vulnerabilities are high, strategic investments in resilience, green finance, and regional cooperation offer pathways to stability. By prioritizing adaptation and mitigation, emerging markets can safeguard growth and contribute to global sustainability.
