Industrial competitiveness under strain

Manufacturers warn that high electricity costs, import dependence, and plant closures are eroding domestic production capacity. Government plans to cut power bills by up to 25% for over 7,000 firms may help, but competitiveness concerns still threaten supply resilience and reinvestment decisions.

High-Tech FDI Expansion Wave

Vietnam is attracting larger, more technology-intensive investment, with annual FDI projected at US$38-40 billion over five years and 2026 inflows near US$29 billion. Semiconductors, AI, digital infrastructure, and advanced electronics are becoming central to site-selection and supplier strategies.

Nickel Quotas Reshape Supply Chains

Indonesia’s tighter RKAB mining quotas and possible 2026 cap near 250 million tons are constraining nickel ore availability against estimated smelter demand of 340-400 million tons, lifting prices, disrupting output, and forcing battery and stainless supply chains to reassess sourcing.

External Accounts Stabilizing Fragilely

March recorded a current-account surplus above $1 billion, remittances of $3.8 billion, and foreign reserves around $15.8 billion, with projections above $18 billion by June. Yet this stability remains exposed to oil shocks, debt repayments, and export weakness.

Monetary Policy Divergence Risk

The Bank of Japan kept rates at 0.75% while headline inflation stood near 1.5% and core measures around 2.4%, leaving negative real rates. This sustains carry trades, weakens the yen, and complicates capital allocation and treasury planning.

Energy Import Shock Exposure

Japan’s heavy dependence on imported fuel remains a first-order business risk. Roughly 95% of crude imports come from West Asia, while LNG prices in Asia have reportedly surged 70%, raising power costs, compressing margins, and threatening manufacturing continuity.

Labor Policy Erodes Investor Appeal

Labor regulation changes are weakening perceptions of South Korea’s business climate. In a 2026 survey, firms ranked labor policy and flexibility as the top challenge, with negative assessments jumping from 9.4% to 71%, raising concerns over operating predictability and investment attractiveness.

Samsung Labor Unrest Risk

Samsung unions representing over 70% of domestic staff are threatening an 18-day strike from May 21. Reported output fell 18.4% at memory fabs and 58.1% at foundry lines during a rally, risking customer delays, price volatility and supplier disruption.

Energy Price and Security

Energy security has re-emerged as a core business risk after Middle East disruption pushed Germany’s 2026 growth forecast down to 0.5%. Higher oil, gas and raw-material costs are raising inflation, transport expenses and procurement volatility across manufacturing, logistics and chemicals.

Fiscal Expansion with Select Discipline

Canada’s spring fiscal update cut the 2025-26 deficit forecast to C$66.9 billion from C$78.3 billion, but still signalled elevated medium-term deficits and C$37.5 billion in net new spending. Businesses should expect targeted support alongside ongoing scrutiny of debt, taxes and government procurement.

Nearshoring Accelerates Through Mexico

Tariffs and rules-of-origin arbitrage are pushing more production and assembly into Mexico and North American corridors. At the same time, scrutiny of transshipment is intensifying after reported suspicious USMCA-related shipments rose 76 percent in the first ten months of 2025.

Energy Shock Pressures Economy

Thailand remains highly exposed to imported energy costs, prompting weaker growth, softer tourism and rising inflation risks. The central bank cut its 2026 growth view to 1.3% in one scenario, while higher oil prices are raising import bills and operational expenses.

Non-Oil Growth Reshapes Demand

Non-oil activities now contribute about 55% of GDP, while total GDP reached roughly SR4.9 trillion in 2025. This broadens demand beyond hydrocarbons into logistics, tourism, manufacturing, technology, and services, creating more diversified revenue opportunities for foreign firms.

Supply Chain Vulnerability to Shocks

Recent interventions to restart domestic bioethanol output highlighted the UK’s dependence on fragile inputs such as CO2, industrial chemicals and imported gas. Companies should expect stronger policy focus on strategic resilience, reshoring incentives and continuity planning for nationally important supply chains.

China Exposure Drives Diversification

Berlin is reassessing dependence on China amid trade deficits, raw-material concerns, and industrial overcapacity. German exports to China rose only 2.1% in 2024, imports fell 4.3%, and direct investment dropped 18%, encouraging nearshoring, supply-chain diversification, and tighter scrutiny in strategic sectors.

Semiconductor Reshoring Accelerates Unevenly

The United States is expanding domestic chip fabrication through subsidies, state backing, and strategic investments, but packaging, testing, and supplier ecosystems remain concentrated in Asia. High US construction and labor costs, workforce shortages, and missing back-end capacity limit full supply-chain security and raise execution risk.

Energy Security Drives Investment

Energy infrastructure remains a core business risk and investment opportunity. Ukraine needs at least €5.4 billion before winter to restore 6.5 GW, while private investors are funding decentralized renewables, storage, and grid upgrades to reduce blackout exposure.

Tax Base Expansion and Budget Pressure

The FY27 budget is expected to broaden taxation into agriculture, retail, real estate, IT and export income, while targeting a 2% primary surplus. With tax collection at Rs11.735 trillion versus a Rs12.3 trillion target, businesses should prepare for heavier documentation and compliance burdens.

Critical Minerals Supply Vulnerability

US efforts to reduce dependence on Chinese rare earths and strategic inputs are colliding with Beijing’s tighter licensing and broader coercive toolkit. Recent shortages affected auto supply chains within weeks, underscoring exposure in aerospace, electronics, defense-linked manufacturing, and energy-transition industries operating through the United States.

Labor Shortages Constrain Expansion

Germany had more than 617,000 unfilled jobs at the start of 2026, with a projected 440,000 worker shortfall by 2029. Shortages in engineering, construction, healthcare, and freight transport are pushing immigration reforms but still limiting business scaling and operational resilience.

Export Controls Reshape Tech Supply

US export controls on semiconductors and chipmaking equipment remain central to industrial policy and national security. Tighter rules, possible allied alignment and servicing restrictions risk fragmenting electronics supply chains, limiting market access and forcing multinationals to separate technology, customers and production footprints.

Defense Industrial Expansion Creates Demand

With around €60 billion in EU support directed to defence capacity, Ukraine is scaling domestic arms and drone production, with an initial defence tranche reportedly €6 billion. This supports manufacturing demand, local supplier opportunities, technology partnerships, and dual-use industrial investment potential.

China Dependence Deepens Further

China accounts for roughly one-third of Russia’s total trade, while more settlements shift into yuan, helping Moscow bypass Western restrictions but making Russian trade, liquidity and pricing power increasingly dependent on Chinese banks, demand conditions and political decisions.

High Rates, Inflation, Strong Real

Inflation expectations rose to 4.86% for 2026, above the 4.5% ceiling, while markets see Selic at 13.0%. The real strengthened below R$5 per dollar, affecting import costs, export competitiveness, funding conditions, and foreign portfolio allocation decisions.

Energy Capacity and Permitting Constraints

Energy reliability remains a structural constraint for manufacturing growth, especially in northern industrial corridors. Mexico aims to lift renewable generation from 24% to at least 38%, cut permit times by 60%, and evaluate 81 projects, but supply adequacy remains critical for investors.

Investment Partnerships and Screening

The UK is promoting inbound capital through new partnerships such as its Australia investment MoU, linking a £3 trillion UK pension market with Australia’s $4.5 trillion superannuation pool. Yet tougher national-security scrutiny, including on Chinese wind suppliers, complicates foreign investment execution.

Semiconductor Controls and Decoupling

U.S. legislation and allied export controls are tightening pressure on China’s chip sector, while Beijing mandates at least 50% domestic equipment for new capacity and excludes foreign AI chips from state-backed data centers, accelerating bifurcated technology ecosystems and supplier displacement.

India Trade And Shipbuilding Push

South Korea is expanding economic ties with India, targeting bilateral trade growth from roughly $27 billion to $50 billion by 2030. New cooperation in shipbuilding, semiconductors, batteries, and critical minerals supports diversification beyond traditional markets and broader Indo-Pacific supply chain resilience.

Foreign Investment Momentum Strengthens

Approved foreign direct investment reached THB324 billion in 2025, up 42% year on year and extending five consecutive years of growth. Semiconductor, cloud and AI investments, including Microsoft’s US$1 billion plan, reinforce Thailand’s appeal for regional manufacturing and digital operations.

Compliance Enforcement Gets Costlier

U.S. trade and export enforcement is becoming more punitive and extraterritorial, with large penalties, audit obligations and broader reexport scrutiny. Companies using multi-country manufacturing, distributors or service hubs face rising legal, documentation and board-level compliance demands before entering transactions.

China Dependence Trade Imbalance

China has overtaken the US as India’s largest trading partner, underscoring persistent import dependence despite diversification ambitions. Bilateral trade reached about $151.1 billion in FY2025-26, with India’s deficit widening to $112.16 billion, exposing manufacturers and supply chains to concentrated external risk.

Red Sea Shipping Rerouting

Houthi threats and Bab el-Mandeb disruption continue to distort Israel-linked shipping, especially through Eilat. Although first-quarter freight there rose 118% and 11,500 tonnes of vehicles moved via Jordan, businesses still face longer routes, higher freight costs and logistics uncertainty.

Stricter Rules of Origin

U.S. negotiators are pushing to raise North American sourcing requirements, reportedly toward 100% for key components such as engines, electronics and software, versus roughly 75% today. That would force supplier reconfiguration, deeper localization and higher compliance costs across manufacturing chains.

War and Security Disruption

Continuing Russian attacks on energy and transport infrastructure, alongside unresolved security risks, remain the dominant constraint on trade, logistics, insurance, and project execution. Reconstruction costs are estimated near $600-800 billion, keeping operating conditions volatile for investors and cross-border supply chains.

Energy-Linked Trade Structuring

Energy is becoming a central lever in India’s external economic negotiations, especially with the US, where India has indicated possible purchases worth $500 billion over five years. That could affect commodity sourcing, shipping flows, trade balances and long-term industrial input costs.

Market Volatility and Leverage

The Kospi has crossed 7,000, but short-selling balances, stock lending, and leveraged positions have also hit records, with VKOSPI near historic highs. Elevated financial volatility can affect funding conditions, investor sentiment, hedging costs, and timing for foreign capital deployment.