War-driven fiscal pressure

Rising defense expenditure is straining public finances and may require higher taxes, spending cuts or additional borrowing. Reports cite a roughly $94.5 billion 10-year defense plan, with debt-to-GDP potentially reaching 83% by 2035, increasing medium-term sovereign risk.

Russian Exposure and Sanctions Risk

Russia supplied roughly half of India’s crude imports in March, while U.S. waivers and insurer approvals temporarily eased flows. This dependence creates significant sanctions, payment, insurance and reputational risks for foreign firms, especially where supply chains, refining links or U.S. market exposure overlap.

Defence industrial policy deepens

AUKUS and related defence programs are driving long-horizon industrial investment, especially in Western Australia. Base upgrades at HMAS Stirling, submarine infrastructure and new Japan-Australia frigate production create opportunities in advanced manufacturing, but execution risk and supply constraints remain material.

Freight Bottlenecks Constrain Exports

Rail and port underperformance remains South Africa’s biggest trade constraint, with freight logistics down 4% in Q1 and rail moving roughly 165 million tonnes against demand near 280 million. Export delays, higher trucking costs, and weaker port reliability raise supply-chain risk.

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.

Fiscal Credibility Clouds Investment Outlook

Fitch shifted Indonesia’s outlook to negative, citing weaker policy credibility, subsidy pressures and possible off-budget spending. With the 2026 deficit baseline at 2.9% of GDP and rupiah pressure persisting, investors face higher macro, financing and policy predictability risks.

Tariff Truce Remains Fragile

Although Beijing and Washington are pursuing summit diplomacy, the current trade truce appears tactical and time-limited, not structural. Businesses should expect renewed tariff, sanctions, and licensing volatility before the November 2026 expiry, complicating pricing, investment timing, and long-cycle capital-allocation decisions.

Operational Cyber and Data Nationalism

Authorities have barred more than a dozen U.S. and Israeli cybersecurity products and required some state-funded projects to use domestic technology. This intensifies localization pressure, raises replacement costs, and creates operational uncertainty for foreign software, cloud, and digital infrastructure providers.

Foreign Business Climate Deterioration

Immediate implementation of new rules without consultation, plus restrictions on foreign software and broad anti-discrimination enforcement, are worsening the operating environment for foreign firms. Companies face higher regulatory unpredictability, greater pressure to localize, and more difficult China derisking strategies.

China Reliance Trade Concentration

China now accounts for the overwhelming share of Iran’s oil sales, with some reporting putting the figure at 99% of tracked exports. This concentration increases vulnerability to policy shifts in Beijing, sanctions enforcement, discounted pricing, and bilateral payment frictions.

Regulatory and Bureaucratic Overload

Complex regulation and slow permitting continue to deter investment and delay execution. Industry groups say the EU adopted roughly 13,000 legal acts from 2019 to 2024, while companies cite weak public-sector digitalization and cumbersome administration as barriers to faster deployment.

Trade Diversification from China

Taiwan is reducing dependence on China as exports to China fell from 40.1% in 2016 to 26.6% in 2025, while outbound investment to China and Hong Kong dropped from 83.8% in 2010 to 4.69% in 2025, reshaping supply-chain geography.

Hormuz Maritime Security Shock

Disruption in the Strait of Hormuz remains the most immediate operational risk. The chokepoint normally carries about 20% of global oil and gas flows, but recent traffic reportedly fell from roughly 130 daily transits to single digits, driving freight, insurance and rerouting costs.

Wage Growth and Cost Pass-Through

Japan’s spring wage settlements remain strong, with average pay rises of 5.08% for a third straight year above 5%. Rising labor costs support consumption but also encourage broader corporate price pass-through, affecting operating margins, retail pricing, and long-term inflation assumptions.

USMCA Tariffs Here to Stay

Washington has signaled automotive, steel and aluminum tariffs will persist through the 2026 USMCA review. Mexico sent over 2.8 million of 4 million vehicles produced in 2024 to the United States, so enduring duties will materially alter pricing, margins and investment planning.

Investment Momentum Broadens Geographically

Total FDI reached $88.29 billion in April-February 2025-26, with net FDI rising to $6.26 billion and officials expecting about $90 billion for the full year. Grounded projects across 14 states signal expanding industrial opportunities, especially in chemicals, pharma, electronics, and auto-EV.

Regional War Raises Energy Costs

Middle East conflict has sharply increased Egypt’s gas import bill and fuel costs, pressuring industry, transport, and margins. Officials said monthly natural-gas import costs jumped by $1.1 billion to $1.65 billion, prompting fuel hikes, rationing measures, and project slowdowns.

China Re-engagement and Security Risks

Canada’s renewed commercial opening to China, including access for 49,000 Chinese EVs in exchange for lower Chinese tariffs on canola and seafood, creates opportunities but raises major strategic concerns around forced labour exposure, data security, local manufacturing competitiveness and U.S. political backlash.

Australia-China Trade Frictions Re-emerging

Canberra imposed tariffs of up to 82% on Chinese hot-rolled coil steel after anti-dumping findings, showing trade tensions remain live despite broader diplomatic stabilisation. Businesses should expect selective protectionism, compliance scrutiny and renewed volatility in China-linked industrial trade.

Fiscal Strain Behind Resilience

Despite continued export earnings, fiscal pressure is rising. Russia recorded a first-quarter 2026 budget deficit near $60 billion, while falling oil and gas revenues have pushed the state to use gold and yuan reserves more actively. This increases macro volatility and policy unpredictability for businesses.

War Risks Shape Operations

Persistent Russian strikes keep physical security, insurance costs, and business continuity planning at the center of all Ukraine exposure. Ports are attacked roughly every five days, 193 port facilities and 25 civilian vessels were damaged this year, and energy outages continue disrupting production and logistics.

Corporate Governance Reform Momentum

Governance reforms and Tokyo Stock Exchange pressure are pushing firms to unwind cross-shareholdings, improve capital efficiency, and increase buybacks. This is reshaping valuation dynamics, M&A prospects, and investor expectations for foreign shareholders and strategic acquirers in Japan.

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.

AI Sovereignty and Regulation

The UK is backing sovereign AI capacity with a £500 million Sovereign AI Unit and forthcoming AI hardware initiatives, while avoiding alignment with the EU AI Act. This creates opportunities in digital investment, but firms face evolving governance, security and compliance expectations.

Vision 2030 Diversification Momentum

Saudi Arabia’s final Vision 2030 phase is accelerating diversification, with non-oil activities now 55% of GDP, private-sector contribution at 51%, and 93% of annual KPIs met. This broadens opportunities in trade, services, manufacturing, and long-term market entry.

External Accounts Remain Fragile

Despite stronger remittances, tourism, and FDI, Egypt’s external position remains vulnerable as current-account pressures persist, oil imports rise, and debt-service burdens stay heavy. Businesses should watch FX liquidity, payment conditions, and exposure to any renewed pound weakness.

Persistent Inflation, Higher Rates

US PCE inflation reached 3.5% year-on-year in March, with core at 3.2%, reducing prospects for rate cuts. Elevated borrowing costs and energy-driven price pressures complicate investment planning, working-capital management, consumer demand forecasting, and valuation assumptions across internationally exposed sectors.

Mining And Industrial Expansion

Saudi Arabia is scaling mining, metals and manufacturing as non-oil export engines, with mineral wealth estimated around SR9.4 trillion, Saudi ranking 10th in Fraser’s mining index, and factory growth supporting supply-chain diversification, downstream processing and new partnership opportunities for foreign firms.

Data Centre and AI Infrastructure Boom

Large-scale digital infrastructure is emerging as a new investment theme, led by Bell Canada’s planned 300-megawatt Saskatchewan AI data centre with a reported $12 billion commitment. These projects will boost demand for power, land, cooling infrastructure, and local regulatory compliance.

Regional headquarters investment pull

More than 700 international companies have established regional headquarters in Saudi Arabia, reflecting stronger incentives, regulatory reforms, and market access advantages, but also reinforcing competitive pressure on firms to deepen local presence to win contracts and partnerships.

Logistics Costs Climb Nationwide

US supply-chain operations face renewed cost pressure from fuel prices, shipping rerouting and trucking constraints. More than 34,000 routes have been diverted from Hormuz, while March containerized imports reached 2.35 million TEUs, straining ports, rail ramps and inland freight networks.

Monetary Tightening and Inflation

Turkey’s central bank kept rates at 37%, with overnight funding near 40%, as March inflation slowed to 30.9% but energy shocks lifted year-end expectations to 27.5%. High borrowing costs, weaker credit growth and lira management complicate investment planning and working-capital decisions.

Fuel import vulnerability exposed

Australia’s heavy dependence on imported liquid fuels has become a frontline business risk. China supplied about 30% of jet fuel last year, while Middle East disruption and export curbs threaten aviation, mining logistics, freight continuity and broader commodity exports.

Shipbuilding and LNG Expansion

Korean shipbuilders are winning major LNG, ammonia-carrier, gas-carrier, and FSRU orders while the government deepens shipbuilding-shipping coordination. This strengthens Korea’s role in maritime energy infrastructure, benefiting export earnings, industrial suppliers, port logistics, and long-cycle manufacturing investment.

Energy Shock Raises Operating Costs

The Middle East conflict lifted oil, freight and insurance costs, forcing repeated fuel-price increases, higher electricity and gas tariffs, and tighter energy management. For manufacturers, transport-intensive firms and importers, Pakistan’s cost base and margin volatility have materially increased.

Strategic industry permitting fast-track

The government is accelerating 150 strategic industrial projects worth €71 billion through faster permitting, streamlined litigation and expanded ready-to-build land. The push benefits batteries, biofuels, health, aerospace and data centers, while increasing execution risk around environmental opposition and legal scrutiny.