Tourism Recovery with Cost Shifts

Domestic travel has recovered close to pre-pandemic levels, with about 23 million Golden Week travelers, but spending behavior is shifting. Yen weakness, fuel surcharges and higher hotel rates are changing demand patterns, influencing retail, hospitality staffing, transport utilization and regional investment opportunities.

Tourism Foreign Exchange Buffer

Tourism is providing critical foreign-exchange support despite regional volatility. Revenues reached a record $16.7 billion in FY2024/25, arrivals climbed to 19 million in 2025, and stronger services exports partially offset pressure from shipping losses and energy imports.

Saudi landbridge logistics expansion

Saudi Arabia is rapidly strengthening overland and multimodal logistics, including new freight corridors to Jordan and truck-rail links between Red Sea and Gulf ports, cutting transit times and creating supply-chain redundancy for shippers avoiding maritime chokepoints.

Australia-Japan Economic Security Pact

Canberra and Tokyo signed new economic security agreements covering energy, food, critical minerals, cyber, and contingency coordination against economic coercion and market interruptions. For international firms, this points to deeper trusted-partner sourcing, preferential project support, and tighter scrutiny of strategic dependencies.

Gas and Strategic Infrastructure Upside

Alongside technology, energy remains a medium-term opportunity area. Analysts expect significant investment in domestic renewables and expanded natural-gas production and export capacity in 2026-27, offering upside for infrastructure, regional energy trade, and service providers if security conditions remain broadly contained.

Industrial Policy Reshapes Investment

Federal support and protection for semiconductors and other strategic industries continue redirecting capital into US manufacturing. Yet high construction costs, labor shortages, and incomplete supplier ecosystems mean companies must balance incentives against slower timelines and persistent dependence on Asian production nodes.

Nickel Quotas Reshape Supply Chains

Indonesia’s tighter 2026 nickel ore approvals, around 190-240 million tons versus industry demand estimates of 340-350 million, are lifting prices and constraining feedstock. Mining, smelting, stainless steel, and EV battery supply chains face higher input costs and procurement uncertainty.

US Trade Relationship Deterioration

Tensions with Washington are becoming a meaningful external trade risk. US scrutiny of Pretoria’s foreign policy, aid suspensions, tariff disputes, and AGOA review create uncertainty for exporters, especially automotive, agriculture, and manufacturing firms dependent on preferential US market access.

BOJ Tightening and Yen Volatility

The Bank of Japan is signaling a possible June rate hike from 0.75% to 1.0% as inflation risks rise. Yen intervention of up to ¥10 trillion and moves near ¥160 per dollar are reshaping hedging costs, import bills, pricing and capital allocation.

Energy Shock And Inflation

Thailand’s oil and gas net imports equal roughly 7% of GDP, leaving businesses exposed to Middle East-driven fuel shocks. The central bank cut growth forecasts to 1.5% and expects 2026 inflation near 2.9%, raising logistics, power, and operating costs.

Foreign Firms Face Compliance Squeeze

Companies operating in China face growing tension between home-country sanctions, export controls, and Chinese anti-sanctions rules. The resulting compliance asymmetry increases board-level exposure, complicates internal controls, and may force difficult choices on market participation, suppliers, and partnerships.

Credit Stability Amid Fiscal Strain

S&P reaffirmed Israel at A/A-1 with a stable outlook, citing innovation capacity and ceasefire-related de-escalation, but warned elevated defense spending and geopolitical risk will pressure public finances. This supports financing access, yet keeps sovereign-risk and borrowing-cost sensitivity high.

Corporate Investment in Strategic Sectors

Business support is strong for government investment in economic security, energy and other priority industries, with 79% of surveyed major firms backing the broader strategic-sector agenda. This favors semiconductors, digital infrastructure and advanced manufacturing, but may steer incentives and competition toward politically preferred industries.

Humanitarian Access And Border Frictions

Aid delivery and movement through crossings such as Rafah remain inconsistent, with reports that agreed humanitarian flows are still unmet. These bottlenecks deepen reputational, legal and operational risks for firms exposed to healthcare, transport, relief supply chains, or politically sensitive procurement relationships.

Water Stress in Industrial Hubs

Water shortages are becoming a material operating risk in northern and Bajío manufacturing clusters, where industrial expansion has outpaced local resource availability. Water access now affects site selection, expansion timing, operating continuity, and ESG scrutiny for water-intensive sectors.

External Account Vulnerability

Pakistan’s trade deficit widened to $4.07 billion in April, a 46-month high, while imports surged 28.4% month on month. Despite reserves rebuilding toward $17–18 billion, external financing needs remain high, leaving importers and foreign investors exposed to balance-of-payments stress.

Budget Strain Signals Policy Risk

Russia’s January-April federal budget deficit reached 5.88 trillion rubles, or 2.5% of GDP, already above the annual target, while oil-and-gas revenues fell 38.3%. Fiscal stress increases risks of ad hoc taxes, subsidy changes, capital controls, and payment delays affecting investors and suppliers.

Escalating Sanctions Enforcement Network

Washington expanded pressure with sanctions on 35 shadow-banking entities and individuals, part of roughly 1,000 Iran-related actions since February 2025. The measures heighten secondary-sanctions exposure for banks, traders, insurers, and China-linked counterparties handling Iranian commerce.

Semiconductor Supply Chain Focus

AI-driven chip investment is lifting attention on Japanese niche suppliers such as factory automation and materials firms. Activist pressure on companies like SMC underscores strategic value creation opportunities, while Japan’s semiconductor ecosystem remains central to regional technology supply chains.

Managed US-China Economic Rivalry

The US and China are stabilizing ties tactically while deepening structural decoupling in tariffs, sanctions, rare earths and strategic goods. China’s share of US imports fell to 7.5%, forcing companies to redesign sourcing, inventory buffers and geopolitical contingency planning.

Vision 2030 Delivery Surge

Saudi Arabia has entered Vision 2030’s final delivery phase, with 93% of indicators at or near target and 90% of 1,290 initiatives on track. Faster execution, sustained capital spending, and local-content policies will shape procurement, partnerships, and market-entry opportunities.

Semiconductor And Export Control Tightening

US semiconductor policy is becoming more restrictive, with targeted ‘is-informed’ letters and broader export-control expansion likely. Suppliers with large China exposure face revenue risk, while downstream manufacturers must prepare for tighter licensing, substitution challenges, and further fragmentation of global technology supply chains.

Myanmar Border Trade Reopens

The reopening of a key Myanmar-Thailand bridge after months of closure should revive cargo movement, services, and local commerce. However, martial law in parts of Myanmar still leaves cross-border trade, route security, and supply-chain predictability vulnerable to renewed disruption.

Supply Chains Exposed Again

Risks linked to Strait of Hormuz disruption and broader Middle East instability are threatening inputs for chemicals, construction, and manufacturing. German officials warn bottlenecks could halt production, making inventory strategy, routing diversification, and supplier resilience more important for multinationals operating locally.

Logistics Corridor Upgrading

Vietnam is pushing logistics improvements to support trade growth, including a proposed direct Portland–Cai Mep-Thi Vai shipping route. Rising exports to the US, which exceeded $151.8 billion in 2025, are increasing demand for ports, warehousing, and multimodal infrastructure critical to supply-chain resilience.

Deep Dependence on Chinese Inputs

India’s trade deficit with China reached $112.1 billion in FY2026, with China supplying 16% of total imports and 30.8% of industrial goods. Heavy dependence in electronics, machinery, chemicals, batteries and solar components leaves manufacturers exposed to geopolitical and supply disruptions.

Chinese EV Global Expansion

Chinese automakers are offsetting domestic price wars by accelerating exports and overseas production, especially in Europe. JPMorgan expects Chinese brands could reach 20% of western Europe’s market by 2028, reshaping automotive supply chains, pricing benchmarks, localization decisions and competitive dynamics for incumbents.

Imported Energy and LNG Exposure

Taiwan remains heavily exposed to imported fuel and maritime energy chokepoints. Natural gas supplies cover roughly 11 days, while gas accounts for about half of power generation, leaving manufacturers vulnerable to higher costs, price volatility, and external shipping disruptions.

US-China Technology Decoupling

New US curbs on chip-equipment exports to major Chinese fabs deepen semiconductor decoupling. Suppliers face lost China revenue, while manufacturers confront tighter sourcing options, retaliatory Chinese controls on minerals and components, and renewed pressure to regionalize advanced technology supply chains.

Deepening EU Market Integration

Ukraine is moving toward phased access to the EU Single Market, ACAA trade facilitation, and wider participation in EU programs before full accession. This gradual integration could reduce border frictions, align standards, and improve investor confidence in export-oriented manufacturing and logistics.

Fiscal tightening amid weak growth

France is pursuing deficit reduction below 3% of GDP by 2029 despite fragile 2026 growth of 0.9%, a 5% deficit target, and a first-quarter state budget shortfall of €42.9 billion. Businesses face possible tax, subsidy, and spending-policy adjustments.

Defense Reindustrialization and Spending Rise

France is accelerating defense investment, adding €36 billion through 2030 and lifting the military plan to €436 billion. Higher demand for munitions, drones and domestic sourcing will create opportunities in aerospace and advanced manufacturing, but may crowd fiscal space elsewhere.

China-Plus-One Supply Chain Gains

Policy reforms, investment facilitation, and targeted electronics incentives are reinforcing India’s role in diversification away from China. The government says FDI could reach $90 billion in FY2025-26, supporting multinationals seeking alternative production bases with improving domestic supplier depth and policy support.

Rupiah Pressure Delays Monetary Easing

Bank Indonesia kept rates at 4.75% as the rupiah weakened toward IDR17,200–17,300 per dollar, prompting stronger FX intervention. Currency stress and higher energy-import costs raise hedging, financing, and repatriation risks for foreign investors and import-dependent businesses operating in Indonesia.

Higher-For-Longer Cost Environment

Tariffs, inflation persistence and fiscal pressure are limiting room for easier policy, even after prior rate cuts. For businesses, this sustains expensive credit, cautious capital expenditure, and pressure on consumer demand, especially in trade-sensitive sectors and inventory-heavy supply chains.

Critical Minerals Processing Buildout

Canada is scaling domestic refining of lithium, cobalt and graphite to reduce external dependence and secure EV, defence and semiconductor supply chains. Recent projects include a C$20 million Electra refinery expansion and North America’s first commercial lithium refining facility in British Columbia.