The IMF’s emerging markets outlook is looking sluggish amid expectations for “subdued” global growth: The IMF has revised downwards its forecasts for emerging markets’ GDP growth in its July update of the World Economic Outlook, saying it sees EMs growing 4.1% and 4.7% in 2019 and 2020, respectively. The figures are 0.3% and 0.1% lower, respectively, from the fund’s last update in April. The EM growth forecast is “a decade low and the second-weakest figure since the dotcom bust of 2002, rather than the 4.4 per cent the IMF pencilled in as recently as April,” the Financial Times notes. Global growth, meanwhile, could pick up next year to 3.5% from an expected 3.2% this year. The expected acceleration in global growth remains “precarious” and is contingent on the resolution of trade conflicts, the recovery of struggling economies such as Turkey and Argentina, and warding off potentially more acute economic collapses in Iran and Venezuela, the fund says.

All major EM regions have seen downwards revisions to their growth forecasts on the back of factors such as rising trade tensions, a high dependence on debt, weak investor sentiment, and policy uncertainty, the fund says. Emerging markets had a weaker-than-expected second quarter, driving the fund to lower its expectations for the remainder of 2019. Latin America is perhaps struggling the most, with the region’s growth outlook bogged down by key players such as Brazil, Mexico, and Argentina, while the “economic implosion in Venezuela [continues] to have a devastating impact.”

What does this all mean for interest rates? “Across emerging market and developing economies, the recent softening of inflation gives central banks the option of becoming accommodative, especially where output is below potential and inflation expectations are anchored. Debt has increased rapidly across many economies. Fiscal policy should therefore focus on containing debt while prioritizing needed infrastructure and social spending over recurrent expenditure and poorly targeted subsidies.”

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