Labor Market Reforms and Automation

Sweeping labor reforms will extend protections to up to 8.6 million freelancers and platform workers, shifting the burden of proof to employers. While enhancing worker rights, these changes may increase costs and accelerate automation, impacting employment dynamics and operational strategies.

Energy Transition and Nuclear Expansion

France’s €52 billion commitment to new nuclear reactors underscores its strategy for energy security and decarbonization. However, hardware shortages, dependence on Asian imports, and rising energy nationalism across Europe create operational and investment uncertainties for energy-intensive industries and infrastructure projects.

Monetary Policy and Interest Rate Stability

The Federal Reserve is expected to hold interest rates steady in early 2026, with a 95% probability, as inflation moderates and employment stabilizes. This policy provides predictability for global investors, although future rate cuts remain possible depending on economic data and labor market trends.

Rapid Digital and Green Transformation

Thailand is prioritizing digital infrastructure, data centers, and green industries to support its economic transformation. Major investments in technology and sustainability are designed to position the country as a regional innovation hub, but require significant upgrades in talent and regulatory frameworks.

Push for Self-Reliance and Local Production

Pakistan is emphasizing local production, value-added exports, and indigenization to reduce import dependence and strengthen foreign exchange buffers. Initiatives span agriculture, manufacturing, and shipping, aiming to double exports and avoid future IMF programs, but require sustained policy execution.

Supply Chain Resilience Initiatives

Taiwan is diversifying production locations, notably with TSMC’s US and European expansion, and joint US-Taiwan artillery production. These efforts aim to mitigate risks from potential blockades or disruptions, ensuring continuity for global tech and defense supply chains.

UK Industrial Strategy and Investment Zones

The UK’s 10-year growth plan focuses on attracting investment in finance, life sciences, clean energy, and manufacturing. New investment zones, freeports, and public-private partnerships are designed to enhance competitiveness and supply chain innovation.

Sovereign Wealth Fund and State Enterprise Reform

The Danantara sovereign wealth fund, managing $1 trillion in assets, is positioned to finance future industries and co-invest with global partners. Plans to rationalize state-owned enterprises from 1,044 to 300 aim to enhance efficiency and governance, signaling a more modern and open investment environment.

Black Sea Grain Export Disruptions

Ongoing Russian attacks on Odesa and other Black Sea ports target civilian ships and port infrastructure, aiming to disrupt Ukraine’s agricultural exports. These disruptions threaten global food security and complicate logistics for international trade partners.

Critical Technologies and Supply Chain Security

Germany is prioritizing cooperation in semiconductors, critical minerals, and digital technologies, especially with trusted partners like India. New joint declarations and centers of excellence aim to reduce overdependence on single suppliers and enhance supply chain resilience in strategic sectors.

Foreign Investment Flows Amid Volatility

Despite rising market volatility and a slight increase in sovereign risk, Indonesia saw Rp1.44 trillion in foreign capital inflows in early January 2026, mainly into equities and securities. Persistent inflows signal continued international investor interest, though bond and currency risks remain.

Mining Sector Volatility and Policy Shifts

The mining sector, a cornerstone of South Africa’s economy, faces volatile commodity prices, rising operational costs, and policy interventions such as export taxes and tariff relief. These dynamics affect investment decisions, supply chain stability, and the country’s position in global mineral markets.

Outbound Investment and Global Capital Flows

China’s record trade surplus is fueling outbound private investment, with over $1 trillion flowing into global markets. This trend increases China’s influence in international finance but raises risks of sudden capital reversals and global market volatility.

Supply Chain Diversification and Upgrading

Vietnam is strengthening its position as a global supply chain hub, attracting high-tech and electronics investment, and benefiting from supply chain shifts out of China. Industrial zones like Amata City Phu Tho and Ho Chi Minh City’s high-tech focus drive this trend, but infrastructure, skilled labor, and ESG standards are critical challenges.

US-EU Trade Tensions Escalate

The US has imposed new tariffs of up to 25% on German and European goods, citing geopolitical disputes. This has led to a sharp decline in German exports to the US, especially in automotive and steel, and threatens supply chain stability and investment planning.

Chronic Trade Deficit and Export Decline

Pakistan’s exports fell 20.4% in December 2025, marking five consecutive months of decline. The trade deficit widened by 35% to $19.2 billion in July–December, threatening external sector stability and forcing reliance on remittances, which heightens vulnerability to external shocks.

Escalating Human Rights Crisis and Crackdown

Iran’s security forces have responded to protests with lethal force, causing mass casualties and widespread arrests. The government’s actions have drawn international condemnation, increasing reputational and compliance risks for foreign investors and partners.

Labor Market Tightness Drives Policy

Australia’s unemployment rate dropped to 4.1% in December 2025, fueling expectations of Reserve Bank interest rate hikes. Persistent labor market tightness supports wage growth but raises inflation risks, impacting business costs, consumer demand, and monetary policy outlook for 2026.

Post-Brexit UK-EU Trade Realignment

The UK government seeks closer economic ties with the EU without rejoining the customs union, balancing regulatory alignment and trade benefits. Ongoing negotiations and political volatility create uncertainty for businesses, particularly regarding customs, standards, and future market access.

State Intervention and Industrial Subsidies

The German government is expanding subsidies for new gas-fired power plants and industrial electricity, with €12 billion approved by the EU. While intended to ease energy costs and support heavy industry, these measures raise concerns about long-term fiscal sustainability and market distortions.

Surge in Foreign Direct Investment

Turkey attracted $12.4 billion in FDI in the first 11 months of 2025, a 28% increase year-on-year. The EU remains the main source, with wholesale, ICT, and food manufacturing leading. Improved macroeconomic stability and policy consistency drive renewed investor confidence.

Labor Market Stagnation and Wage Pressure

US job growth slowed sharply in late 2025, with only 50,000 jobs added in December and unemployment at 4.4%. Hiring is concentrated in healthcare and leisure, while other sectors stagnate. Wage growth remains moderate at 3.8% annually, raising concerns about economic dynamism, consumer demand, and future cost structures.

Eastern Economic Corridor Bottlenecks

Land and zoning constraints in the Eastern Economic Corridor (EEC) have delayed major industrial projects, prompting urgent regulatory reforms. The government is also considering opening new regions for investment, which could reshape the industrial landscape and supply chain dynamics.

Energy Sector Volatility and Export Risks

Despite sanctions, Iran remains a key oil exporter, especially to China. However, civil unrest, US tariffs, and regional tensions threaten output and export continuity, impacting global energy prices and the reliability of Iranian crude as a supply source.

Persistent National Security and Human Rights Concerns

Despite renewed economic engagement with China, Canada faces ongoing challenges around foreign interference, technology transfer, and human rights. These issues influence investment screening, regulatory compliance, and reputational risk for international firms in sensitive sectors.

Activation of EU Anti-Coercion Instrument

France is leading calls to activate the EU’s anti-coercion instrument in response to US economic pressure. This unprecedented move could trigger retaliatory trade measures, restrict US firms’ access to EU markets, and reshape the legal and operational environment for international businesses.

Structural Trade Deficit Worsens

Pakistan’s trade deficit surged 35% to $19.2 billion in the first half of FY26, driven by a 20% export decline and rising imports. Persistent external imbalances threaten currency stability, increase sovereign risk, and undermine investor confidence in the country’s trade outlook.

US-Canada Trade Tensions Escalate

Ongoing US tariffs and President Trump’s threats to undermine the CUSMA/USMCA agreement are destabilizing North American supply chains, particularly in the auto sector. Canada faces heightened uncertainty as over 75% of its exports rely on US access, directly impacting investment and operational planning.

Legal Uncertainty Deters Investment

Despite wartime resilience, investors cite unpredictable legal and regulatory frameworks as a greater deterrent than conflict itself. Prolonged legal proceedings and lack of transparency undermine trust, limiting foreign direct investment and complicating contract enforcement.

Nearshoring Drives Manufacturing Boom

Nearshoring continues to transform Mexico’s industrial landscape, with high-tech exports from states like Jalisco growing 89% annually. Companies leverage Mexico’s proximity to the US, skilled labor, and USMCA benefits, making it a global hub for electronics, automotive, and AI hardware supply chains.

Supply Chain Disruptions and Cost Increases

Tariffs and retaliatory measures threaten to disrupt integrated supply chains, particularly in sectors reliant on transatlantic flows. Increased costs, delays, and administrative burdens are expected, affecting competitiveness and profitability for UK exporters and importers.

Critical Uncertainty Over War Settlement

Trilateral talks involving Ukraine, the US, and Russia signal possible movement toward a negotiated end to the conflict. However, the lack of clarity on security guarantees, territorial status, and enforcement mechanisms leaves businesses facing profound uncertainty over the future investment and operating environment.

Hamas Disarmament and Security Dilemmas

The demilitarization of Hamas remains a central, unresolved issue. US and Israeli insistence on full disarmament is met with resistance, and the lack of clear enforcement mechanisms heightens the risk of renewed conflict, affecting supply chains, insurance costs, and investment planning.

Political Risk and 2026 Elections

Brazil’s 2026 presidential election introduces significant political risk. The outcome could shift economic policy, regulatory frameworks, and foreign relations, with potential impacts on trade, investment, and the business climate for international firms.

Declining Foreign Investment and Modernization

Foreign investment in Russia is falling, with an 8.7% drop in machinery and equipment imports. Industrial modernization is stalling, and capital controls remain tight, making Russia less attractive for international investors and hampering technology transfer.

Data Quality and Policy Uncertainty

Conflicting labor market data and survey reliability issues complicate economic policymaking and business planning. Discrepancies in unemployment and participation rates raise concerns about transparency and the accuracy of official statistics, increasing operational uncertainty for international investors.