The war in Iran will lead to sharp falls in GDP in the Gulf economies and weigh on energy importers, especially in Asia. Overall, though, so long as the conflict ends relatively soon in line with our baseline scenario, the slowdown in aggregate EM GDP growth will be modest. Inflation has ticked up on the back of the energy shock and further increases lie in store. Few EM central banks will have room to cut interest rates this year. But by the same token, most are likely to be able to refrain from hiking.
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