Weaker global growth, higher inflation, uncertainty add risk.

Emerging markets face growing risks from the fallout of a global trade war and intensifying U.S. policy uncertainty, says Fitch Ratings.

In a new report, the rating agency said that the global economic turmoil is raising risks to emerging market sovereigns.

“The unfolding trade war will reduce world growth, push up U.S. inflation and delay Federal Reserve rate cuts,” it said.

At the same time, the global financing environment is seeing elevated risks too, thanks to the increased uncertainty stoked by U.S. policy — including the lack of clarity about U.S. policy goals and how it expects to achieve them — has helped drive up U.S. bond yields, it noted.

Specific emerging markets also face heightened risks from the emergence of more transactional, unpredictable U.S. foreign policy, reductions in international aid, and a U.S. pullback from international institutions, Fitch said.

One bright spot from the shifting global picture could be a weaker U.S. dollar, which would ease the strain on emerging markets with large U.S. dollar-denominated debt and could give “some central banks a bit more scope to cut interest rates faster,” it said.

So far this year, rating actions on emerging market sovereigns have been balanced, with four upgrades and four downgrades, Fitch noted.

The distribution of rating outlooks is tilted to the upside, as nine emerging markets have positive outlooks, and six are on negative outlooks, it said.