The rise was equivalent to more than USD 10 trillion in just six months, although the pace of accumulation was less than half the USD 21 trillion added during the first half of 2025.

The increase is particularly significant because borrowing costs are no longer at the exceptionally low levels that characterised much of the period following the global financial crisis and the Covid-19 pandemic.

Government bond yields have risen sharply in several major economies, increasing the cost of servicing existing debt and making new borrowing pricier.

The IIF has warned that governments risk becoming caught in a “vicious cycle” in which large fiscal deficits require more borrowing, while rising interest bills leave them with less room to address those deficits.

Emerging markets drive the increase
Emerging markets were responsible for roughly USD 6.5 trillion of the increase during the first six months of the year, raising their combined debt above USD 110 trillion.

China was the biggest contributor. Its overall debt rose by more than USD 4.8 trillion, taking the country’s total outstanding debt to about USD 72.5 trillion, according to calculations based on IIF data.

The increase reflects borrowing across governments, financial institutions, companies, and households rather than a single source of leverage.

China’s government debt reached about 103.3% of GDP, up from 95% a year earlier, while non-financial corporate debt reached 144.6% of GDP. Household debt, by contrast, declined slightly to 58.7% of GDP.

Other emerging economies are also experiencing divergent trends.

Brazil’s government debt rose to 97.3% of GDP from 89.5%, while India’s government debt ratio was broadly stable at 77.5%. India’s corporate debt, however, increased to 48.4% of GDP from 46.2%.

That divergence is relevant for investors because debt sustainability depends not simply on the absolute amount borrowed but also on the currency in which it is denominated, the maturity profile, borrowing costs, and the ability of an economy to generate growth and tax revenues.

Debt ratio masks underlying pressure
Initially, the global debt picture may seem less alarming when compared to the size of the world economy.

The global debt-to-GDP ratio is around 310%, according to the IIF, roughly 25 percentage points below its peak in early 2021. But the organisation cautions that the improvement does not necessarily represent genuine deleveraging.

Higher inflation has lifted nominal GDP, making debt appear smaller relative to economic output even as the absolute stock of debt continues to rise. The IIF describes the situation as an “illusion of stability,” arguing that the underlying vulnerabilities remain.

The distinction is important for financial markets. A country can sustain a high debt ratio when economic growth, inflation, and borrowing costs are favourable. The same debt burden becomes more difficult to manage when interest rates remain elevated and economic growth slows.

That is increasingly relevant as investors demand higher returns for holding long-term government bonds.

The refinancing problem
The biggest near-term issue for many borrowers is not simply the amount of debt outstanding but when it has to be refinanced.

The Organisation for Economic Co-operation and Development warned in its 2026 Global Debt Report that higher long-term borrowing costs have encouraged governments and companies to issue more short-term debt. While shorter maturities can reduce immediate interest costs, they leave borrowers more exposed to refinancing risks when existing securities mature.

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The OECD estimates that governments and companies will borrow about USD 29 trillion from bond markets in 2026, 17% more than in 2024 and twice the level of a decade earlier.

OECD governments are expected to use about 78% of their borrowing this year to refinance existing debt instead of financing new spending.

This creates a potentially difficult feedback loop.

If bond yields rise, refinancing becomes pricier. Higher interest payments increase budget deficits, forcing governments to issue more debt. Increased issuance can, in turn, place additional pressure on bond markets.

The IIF’s warning about a “vicious cycle” is therefore centered on the interaction between fiscal policy and financial markets rather than simply the size of the global debt number.

Governments face competing demands
The pressure comes at a time when governments are being asked to spend more, not less.

Defence budgets are increasing amid geopolitical tensions, while governments are also supporting energy security, infrastructure, industrial policy, and the development of artificial intelligence.

The OECD has separately warned that AI investment could generate substantial additional corporate borrowing. It estimates that nine major AI companies could issue about $1.2 trillion of corporate bonds between 2026 and 2030 to finance capital expenditure.

That creates another tension for markets: investment financed through debt can support future productivity and economic growth, but it also increases leverage before those expected returns are realised.

The IIF has similarly highlighted the increasing importance of government spending priorities and the political difficulty of reducing deficits.

It argues that debt has increasingly become a political rather than purely macroeconomic issue, creating pressure for short-term measures while leaving longer-term vulnerabilities unresolved.

Developed markets are not immune
Although emerging markets contributed most of the latest increase, advanced economies remain at the center of the debt challenge.

Government bond yields in the US, Japan, France, and the UK have reached levels not seen for more than a decade, according to recent reporting on the IIF data. Rising yields reflect a combination of inflation concerns, higher expected government borrowing, and investors demanding greater compensation for holding long-dated debt.

The cost is increasingly visible in government budgets.

The IIF estimates that annual interest expenses for G7 governments have risen by about 85% year on year, reaching their highest level since the global financial crisis.

For investors, the situation changes the relationship between fiscal policy and bond markets. Governments that once benefited from exceptionally cheap borrowing now face a world where refinancing costs can materially affect spending decisions.

Markets remain resilient—for now
The debt figures do not automatically signal an imminent financial crisis.

Debt markets have remained relatively resilient despite the increase in leverage. The OECD says global bond markets have continued to provide financing even as geopolitical tensions, trade disputes, and uncertainty have increased.

The concern is what happens if several pressures converge: weaker economic growth, persistent inflation, higher long-term yields, and large volumes of debt requiring refinancing.

That combination could expose borrowers that currently appear stable but have limited fiscal or financial buffers.

The latest increase therefore represents less a single crisis point than a structural challenge for the global financial system.

The world has accumulated an unprecedented amount of debt, and much of it can still be serviced while growth and financial markets remain supportive. But the margin for error is becoming narrower.

As governments compete for capital alongside companies investing in AI, defence, infrastructure, and energy security, the cost of borrowing is likely to become an increasingly important constraint on economic policy.

The USD 365 trillion figure is therefore more than a record. It is a measure of how heavily the global economy now depends on continued access to affordable financing—and a reminder that when that financing becomes pricier, the consequences can extend from government budgets and corporate balance sheets to bond markets, currencies, and global growth.

Today’s divide is techno-economic, driven by overlapping concerns about industrial competitiveness, national security and geopolitical advantage. The speed is alarming, even to those orchestrating it.

Consider semiconductors. In April 2025, the Trump administration blacklisted dozens of Chinese entities from semiconductor trade. China responded by restricting rare earth exports – gallium, germanium and magnesium – essential for chip manufacturing outside Asia.

By October, China asserted extraterritorial control over any foreign-made product containing even 0.1% Chinese-origin rare earths, effectively weaponising supply chains. A one-year truce negotiated at APEC in Busan bought time, but both sides have hardened their domestic production mandates.

China’s “Big Fund,” initially USD 20 billion, later expanded to over USD 35 billion, aims to build an entirely domestic chip ecosystem.

The US is matching ambition with policy: The Strategic Framework for Cooperation with Saudi Arabia (signed November 2025) explicitly targets rare earth security, while Project Vault, announced in February 2026, committed USD 12 billion to establish a US Strategic Critical Minerals Reserve.

In AI, the split is already visible in architecture. US companies – NVIDIA, with its CUDA ecosystem; OpenAI; Google – have built an intelligence stack accessible only with semiconductor exports controlled by Washington.

China’s Huawei, SMIC and ByteDance are rapidly developing parallel systems. Cyberspace fragmentation is not hypothetical; it is happening. The question has shifted from whether there will be two technospheres to how quickly the split will accelerate.

Money, redefined
If technology is the skeleton of bifurcation, currency and payments are its nervous system. For seven decades, the US dollar has dominated global finance through SWIFT, the Belgium-based messaging system that processes approximately USD 6 trillion daily. That hegemony is eroding faster than Washington anticipated.

China’s Cross-Border Interbank Payment System (CIPS) now has 1,467 indirect participants across 119 countries, linking 4,800 banks in 185 countries. Russia, sanctioned and defiant, reported in 2024 that 90% of its trade within BRICS was conducted in national currencies rather than dollars.

The renminbi is already used in 50% of intra-BRICS trade, compared to just 2% in global payments as recently as May 2025.

At the Rio de Janeiro BRICS summit in July 2025, Brazil’s presidency formally advanced a “BRICS Cross-Border Payments Initiative” leveraging central bank digital currencies and blockchain technology.

The initiative avoids the symbolic provocation of a single BRICS currency – a proposal that would trigger immediate American countermeasures – but achieves practical de-dollarisation nonetheless.

A gold-backed “Unit” and the “BRICS Pay” platform remain under discussion, with full deployment expected by 2027.

Tellingly, these systems were conceived and built without western participation or oversight. The New Development Bank, founded in 2014, increased local-currency lending to member states by 41% in 2025, allowing countries to avoid dollar-denominated debt and the currency risks that accompany it.

Unlike the IMF or World Bank, the NDB imposes no policy conditions. It is a form of financial sovereignty. For emerging economies chronically squeezed by foreign exchange constraints, it is revolutionary.

The mineral wars
Rare earth elements are neither rare nor exotic. Dysprosium, terbium, neodymium – they are found in magnets, semiconductors and military systems from jet engines to guidance systems. They are the sinews holding both economies together.

China dominates: It controls 55% of rare earth mining capacity and 85% of global processing capacity.

This is not accident; it is the result of two decades of sustained state investment unencumbered by environmental regulation western competitors face.

The West is scrambling. Australia, backed by USD 1.25 billion in government-guaranteed loans, is scaling midstream capacity and now hosts 89 active rare earth projects – far ahead of Canada (18), Brazil (13) and the United States (12).

In May 2025, Lynas Rare Earths became the first non-Chinese company to produce commercial quantities of dysprosium oxide.

The US Trump administration has moved aggressively: A USD 400 million equity investment in MP Materials, a USD 150 million loan for heavy rare earth separation, and commitments to price floors.

Saudi Arabia, recognising the strategic windfall of its Jabal Sayid deposit, estimated at 552,000 tonnes of heavy rare earths, has signed bilateral frameworks with the US and Japan. Yet even optimistic analysts expect a decade or longer before non-Chinese capacity remotely challenges Beijing’s hold.

This asymmetry explains why minerals are now explicitly geopolitical assets. Countries are not trading them; they are allocating them according to bloc loyalty. China’s December 2025 export control framework codified this as formal policy.

When China tightened dual-use controls on rare earths in January 2026, it specifically targeted Japan. When the US blacklisted MP Materials and USA Rare Earth in June 2026, China retaliated within days. Critical minerals have become strategic hostages.

The countries that refuse to choose
Here is the problem the architects of bifurcation have not solved: What about India? What about Saudi Arabia, Brazil, Indonesia, Vietnam, Turkey and the UAE? These are not minor players. They are resource powers, manufacturing hubs, market opportunities and geopolitical lynchpins.

Collectively, BRICS now represents 46% of global population and 36% of global GDP at purchasing power parity. Yet unlike America or China, they do not have the luxury of choosing a single bloc. Their prosperity depends on access to both. This is the fissure in the bifurcated world.

India’s position is instructive. New Delhi hosted the BRICS summit recently, concluding its third presidency of the organisation since 2012. Simultaneously, India is deepening security partnerships with the Quad (US, Japan, Australia, and itself), hosting American naval exercises, and collaborating on semiconductors and critical

Yet India also hosts Russian nuclear plants, buys 60% of its crude oil outside the western financial system, and has rejected American pressure to divest from Chinese technology.

This is not fence-sitting. It is what Indian strategic thinkers call “multi-alignment with leverage.” New Delhi’s rupee trade mechanism now extends to over 30 countries.

It participates in the Shanghai Cooperation Organisation whilst maintaining Quad discipline. It defended its strategic space within BRICS by formally dissenting from Russia’s proposal for a collective energy pricing mechanism, rejecting any institutional mechanism that would “enforce bloc pricing or penalise trade with Western partners,” according to official minutes of the Energy Cooperation Working Group meeting in Moscow this June.

India wants to play both sides without losing agency to either.

In the Middle East, hedging has become an art form. Saudi Arabia and the UAE are BRICS members yet maintain traditional security ties with the United States. Saudi Arabia imports 80% of its arms from Washington, whilst simultaneously deepening energy partnerships with Beijing.

In April 2025, ADNOC signed three liquefied natural gas contracts with Chinese buyers, including a 500,000-tonne annual purchase from CNOOC. In November, Saudi Arabia signed a Strategic Framework for Cooperation with the US explicitly targeting critical minerals. Both are occurring simultaneously, with no contradiction recognised by either party.

The UAE has taken this logic further. It has diversified defence partnerships beyond the US, signing memoranda of understanding for defence cooperation with South Korea in February 2026 and Pakistan.

Etihad Rail, the 1,200-kilometre high-speed project partly backed by Chinese capital, binds the UAE to Beijing’s Belt and Road infrastructure ecosystem.

Yet the UAE hosts Indian-Pakistan stability talks, channels technology from America, and remains ambiguous about formal bloc commitment. When asked to commit to de-dollarisation at the BRICS summit, the UAE, like Indonesia, distanced itself from the agenda.

Brazil, chairing BRICS in 2025, has been more explicit about its refusal to choose. When Chilean President Gabriel Boric visited Brasília in April and asked about tariffs, President Lula was unambiguous: “We don’t want to trade with the United States or with China. We want to trade with both.”

This is not neutrality; it is active non-alignment. Brazil is simultaneously pursuing agreements with the US on semiconductors and technology whilst deepening BRICS infrastructure partnerships. It is hosting COP30 this November, signalling leadership on climate, an area where both blocs claim priority but neither dominates.

Indonesia’s accession to BRICS as a full member in January 2025 was framed as a strategic gambit for multilateralism and Global South representation. Yet privately, Indonesian diplomats acknowledge the move was also about widening their margin of autonomy in a fragmenting world.

BRICS membership provides access to the New Development Bank’s less-conditional financing, leverage against Western creditors, and a seat at the table where new payment systems are being designed.

But Jakarta explicitly rejected de-dollarisation rhetoric, stating through its foreign ministry that it was “not interested in the issue.” Indonesia wants to access BRICS benefits without inheriting its bloc logic.

Vietnam faces an even sharper dilemma. As a BRICS partner country and participant in the Regional Comprehensive Economic Partnership, a China-dominated trade bloc covering 30% of global GDP, Vietnam simultaneously hosts the largest US military presence in Southeast Asia and deepens technology partnerships through Quad-adjacent initiatives.
Vietnam’s electric vehicle market surged to 22% of new car purchases in 2024, yet sources technology and capital from both China and Western partners.

Like Indonesia, Vietnam is attempting to capture the benefits of both economic systems whilst resisting subordination to either.

Turkey, designated a BRICS partner country in 2025, has long played great powers against one another. It hosts NATO infrastructure whilst deepening energy ties to Russia. It buys defence systems from Russia and America simultaneously.

Turkish President Erdogan has explicitly stated Turkey will not choose between the US and China. This is not sustainable indefinitely, but it remains politically tenable because neither bloc can afford Turkey’s defection without incurring costs greater than Turkey’s compliance.

The price of autonomy
The architects of bifurcation – Washington and Beijing – are becoming impatient with middle powers. Trump’s second administration has made clear that strategic partners must align, particularly on technology and supply chains.

The threat of 100% tariffs on BRICS members contemplating de-dollarisation (announced January 2025) was not idle rhetoric. It was warning. India and Indonesia responded by distancing themselves from de-dollarisation advocacy. Brazil, under pressure, shelved plans for a BRICS currency.

Yet capitulating has costs too. India’s strategic autonomy deteriorated visibly in 2025 as the US scaled back Indo-Pacific commitments.

The Quad lost momentum. American tariffs on Indian steel damaged industrial policy ambitions. China, emboldened by American retreat, increased border pressure.

By December 2025, when Putin visited New Delhi for 27 hours – his first visit since Ukraine escalated – Indian policymakers sent a clear message: If America will not sustain the partnership, Russia and China become default options.

Similarly, Saudi Arabia and UAE have learned that hedging is exhausting. Each seeks a dominant patron for security; each maintains secondary relationships for economic access. But dominance and secondary status cannot coexist indefinitely.

The structural dilemma facing middle powers is this: The global supply chains that sustain their development are bifurcating faster than their diplomatic flexibility can manage. Indian manufacturers need Chinese rare earths and American semiconductors.

Saudi Arabia needs Chinese capital for Vision 2030 infrastructure and American security guarantees against Iran. Brazilian agriculture depends on access to both American markets (grain imports to feed US livestock) and Chinese commodity purchasing. These are not ideological preferences; they are economic facts.

The fracture deepens
What emerges from the experiences of India, Saudi Arabia, Brazil, Indonesia, Vietnam and Turkey is not a third way, but a growing recognition that the bifurcated world will not function.

Parallel economic systems can coexist if they do not touch. But they touch everywhere: In semiconductors required for both military and civilian infrastructure, in rare earths essential for green energy transition, in payment systems that must settle cross-border trade. The logic of bifurcation is that these chokepoints be controlled. The logic of middle powers is that they remain open.

This is the defining tension of 2026. Washington and Beijing are investing in autarky and bloc discipline. Middle powers are defending what they call “strategic autonomy” or “multi-alignment,” which is really a desperate attempt to maintain access to both systems without being forced to choose.

Both strategies are unsustainable. Either bifurcation continues and deepens, forcing countries to genuinely pick sides, or some mechanism for interoperability emerges.

The World Semiconductor Forum’s May 2025 pledge to create a “resilient and transparent global chip supply system” with 40 nations represented suggests the latter is theoretically possible.

But it requires the dominant powers to prefer a functioning global economy to their own bloc dominance – a preference history suggests is unlikely.

The next bifurcation point will not be a headline moment. It will be bureaucratic: New export control regimes, fresh restrictions on technology transfer, deepened sanctions on rare earth processing. Each will be framed as defensive, justified by security concerns. Each will trigger retaliation.

And with each iteration, middle powers will find their room to manoeuvre shrinking.

India’s “multi-alignment with leverage” works only as long as both sides believe India remains valuable to courtship.

Brazil’s “active non-alignment” depends on a functioning space between blocs. By the time that space closes, there are no good options left – only the choice between unwanted futures.

The world is not building two economies by accident. It is the deliberate architecture of great power competition. But the architects have not reckoned with the fact that most of the world does not want to live in either half.

The result also beat the 4.2% median forecast of economists surveyed by Bloomberg. Reuters reported the expansion as a sign that reforms and stronger oil-sector performance are beginning to support a broader recovery.

Oil was a major catalyst. The sector grew 7.31% year-on-year, compared with 2.57% in the first quarter.

Average crude production rose to 1.72 million barrels a day from 1.55 million bpd in the previous quarter and 1.68 million bpd a year earlier.

Higher international oil prices provided an additional boost. Crude averaged about USD 93 a barrel during the quarter, up sharply from roughly USD 73 in the first quarter. The rise reflected tighter global supply conditions amid the US-Iran conflict and disruption risks around the Strait of Hormuz.

For Nigeria, Africa’s biggest oil producer, the combination of higher output and prices is particularly important because oil remains a crucial source of foreign currency and public revenue. Stronger inflows can ease pressure on the naira, improve reserves and give the government greater room to finance spending.

The improvement was not confined to hydrocarbons. The non-oil economy expanded 4.31% in the second quarter, up from 3.94% in the first quarter and 3.64% a year earlier. Agriculture grew 4.39%, while services increased 4.60%.

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Telecommunications, information and communication, real estate, trade, financial services, manufacturing and construction were among the sectors supporting growth.

Services remained the dominant part of the economy, accounting for 56.62% of real GDP. The non-oil sector as a whole contributed 95.84%, underlining the extent to which Nigeria’s growth story extends beyond crude despite the oil sector’s faster expansion.

The figures offer some support for President Bola Tinubu’s economic reform programme, which has included fuel-subsidy removal, exchange-rate reforms and measures designed to attract investment.

The changes have also produced considerable pain, with Nigerians facing high living costs and inflation even as macroeconomic indicators improve.

Nigeria’s stronger oil performance also comes as the country expands domestic refining. The Dangote refinery has sharply increased petroleum-product exports since beginning operations, helping alter regional fuel trade flows and reducing some dependence on imported refined products.

The US Energy Information Administration said recently that Nigeria’s seaborne petroleum-product exports had increased sevenfold since 2023, driven by the refinery.

Rating agencies have begun to recognise the improved external position. Moody’s recently changed Nigeria’s outlook to positive from stable, citing stronger foreign-exchange reserves and economic resilience. It said higher oil prices and increased exports of refined products had helped strengthen the current-account position.

Still, the recovery faces risks. Nigeria remains vulnerable to oil-price swings, production disruptions and security problems in the oil-producing Niger Delta. The government must also translate stronger headline growth into higher household incomes and employment.

Investors will be watching whether the improved oil flows can be sustained, particularly as authorities seek to raise production further and reduce losses from theft, ageing infrastructure and operational disruptions across the petroleum industry, while containing inflation, fiscal pressures and volatility.

The latest expansion remains below Tinubu’s ambition of achieving 7% annual growth by 2027. The World Bank expects Nigeria’s economy to grow about 4.2% this year, suggesting that the country is improving but still has a considerable distance to cover.

For now, the second-quarter figures provide welcome evidence that Nigeria’s long-delayed recovery is gathering momentum. The challenge will be ensuring that an oil-led boost develops into durable, broad-based growth rather than another temporary commodity-driven upswing.

By mid-March, occupancy in Dubai had bottomed out at 19.6%. CoStar recorded 33.1% for the month as a whole, a fall of 54.4% year-on-year, with the Emirates-wide figure at 36.2%. The World Travel and Tourism Council put the cost to the wider Middle East at USD 600 million a day in lost visitor spending, roughly USD 180 million of it attributable to the UAE.

The damage did not stay in the hospitality accounts. Real estate transaction volumes fell 37% year-on-year during the first twelve days of March, and 49% against February, on Goldman Sachs figures.

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The ValuStrat Price Index recorded its first monthly decline since 2020, and listed developer stocks shed a third or more of their value. Dubai’s short-term rental stock briefly stopped functioning as tourist accommodation altogether and became displacement housing, with stays of 29 days or longer tripling as residents opted out of long leases while they decided whether to stay in the country.

That last detail matters more than it first appears. Real estate accounts for more than a quarter of the loan book at some of the country’s largest banks. An expatriate population that leaves, or hedges, does not simply reduce hotel demand. It weakens the collateral underneath the banking system.

The official ledger
The UAE economy grew 3% year-on-year in the first quarter of 2026 to reach AED 485 billion, with non-oil GDP up 4.8% and now accounting for 79.4% of national output. Financial and insurance activities expanded 17.3%, construction 8.1%.

Non-oil exports rose 23.9% in the first half to AED 452.8 billion. S&P has reaffirmed the sovereign at AA with a stable outlook, noting a consolidated government net asset position of around 184% of GDP, among the strongest anywhere in the world.

Dubai’s airspace reopened on May 2 after nearly three months of restrictions, and Emirates restored 96% of its network within days, flying to 137 destinations across 72 countries. Occupancy spiked back to 82.2% over Eid at the end of May.

The Department of Economy and Tourism has committed an AED 2.5 billion support package for tourism, hospitality, and entertainment businesses, aimed at protecting jobs and cash flow rather than buying advertising.

Developers are still building, with around 39 hotels and 9,520 rooms due between 2026 and 2029. The D33 economic agenda has not been revised.

Officials are entitled to point at all of this. The problem is what sits between the two ledgers.

The tell is in the central bank’s own forecast
In April, the Central Bank of the UAE was holding its 2026 growth forecast at 5.6%, unchanged from 2025, even as Oxford Economics moved to a 0.2% contraction and Goldman Sachs warned of a possible 5% shrinkage.

That position did not survive contact with the second quarter. In its June quarterly report, released in early July, the central bank cut the 2026 forecast to 1.7%, with hydrocarbon GDP at 0.8% and non-hydrocarbon at 1.9%.

A downgrade of nearly four percentage points by the institution with the best view of the domestic data is not a rounding adjustment. It is an admission that the disruption is not confined to a bad quarter in the hotel trade.

The same report pencils in a rebound to 9.8% in 2027, which tells you how the authorities are framing this. The loss is being treated as deferred rather than destroyed, a hole that fills in once the shooting stops.

Why the recovery is stuck in the middle
The first-half hotel data shows a market that has come off the floor without returning to anything like normal. UAE-wide occupancy fell nearly 28 percentage points year-on-year through June, with revenue per available room down 31.8%, on CBRE analysis of CoStar data.

Dubai took the worst of it, with occupancy down 24.6 points to 56.4% and RevPAR off 35.2%. Average daily rates slipped 7% to AED 701. After the Eid spike, June settled back into the high forties and low fifties.

Abu Dhabi saw occupancy fall only 13.5 points and RevPAR 20.3%, cushioned by domestic and regional demand, and a fixed events calendar. The split is instructive. Dubai’s model, built on long-haul arrivals and transit traffic, is the one most exposed to airspace closures, insurance exclusions, and nervous consumers eight time zones away.

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Travel advisories are the most damaging. The United Kingdom and Australia relaxed their warnings in June after the initial framework agreement, but Australia still advises reconsidering the need to travel, and the US State Department has held the UAE at Level 3 since March, when it ordered non-emergency government personnel to leave.

A security alert on August 1 went further, telling Americans in the region to consider departing or be ready to. Advisories are not merely reputational. Above certain thresholds, insurers will not write cover, and a holiday nobody can insure is a holiday most people do not take.

Second, airline capacity lags the reopening. European carriers were constrained by an EASA conflict-zone bulletin well into the summer, and were not broadly expected back before October. Seats determine arrivals in a way that marketing cannot.

Third, the business travel that underpins Dubai’s weekday hotel economics has not returned. More than 100 conferences and exhibitions in the UAE were cancelled or postponed because of the Iran war, on Northbourne Advisory figures. Arabian Travel Market itself had to be pushed to September. Corporate and group demand rebuilds slowly, and it rebuilds last.

What the incentive scheme really signals
When a destination pays its own residents to generate arrivals, it is telling you that the ordinary demand-generation machinery, meaning advertising, tour operators, airline partnerships, and word of mouth, is not delivering enough at acceptable cost.

Emirates and Etihad bundling conflict-related travel cover and free medical insurance into tickets carries the same message. So does Atlantis discounting by a quarter, and five-star resorts selling staycations to residents at half price.

Some of the response is genuinely clever. Using an expatriate population drawn from roughly 200 nationalities as a distribution channel is a rational way to reach markets where paid media has stopped working, and the scheme is timed for the summer trough when hotels would be discounting anyway. But there is a cost.

Analysts have spent months urging Dubai hoteliers to hold pre-crisis rates rather than trigger a price war, on the sound grounds that rate is far harder to rebuild than occupancy. A city that trains its customers to expect vouchers and two-for-one dining is doing something to its own positioning that will outlast the war.

Meanwhile, the quiet closures continue. Several landmark properties have shut for extended refurbishment, including Anantara World Islands and the Burj Al Arab, the latter for an estimated 18 months of capital work.

None has publicly linked the timing to the war. Taking rooms out of a market with no demand is sound asset management. It is also, unmistakably, a supply response to a demand shock.

The honest position
The UAE has the fiscal depth to absorb a bad year without distress, a diversified non-oil base that is still growing, and a genuine record of recovering from regional shocks with prices and volumes higher on the far side.

GlobalData expects UAE international arrivals to fall about 12% this year to 26.4 million before rebounding to 32.1 million in 2027. Dubai is targeting a return towards 19.6 million visitors, and betting heavily on the winter season and on projects such as the USD 3.9 billion Wynn resort at Al Marjan Island in 2027.

But a forecast is not an observation. Every recovery scenario now being briefed rests on de-escalation, and this week, that assumption looked thinner than it has since May. The memorandum has lapsed, the naval blockade is in force, Tehran says its posture has shifted from defensive to offensive, and missiles were fired towards the Emirates again.

The dichotomy, then, is not really between a struggling economy and an optimistic government. It is between a balance sheet that can wait and a business model that cannot. Sovereign wealth buys time. It does not buy a ceasefire, and it does not persuade a family in Manchester or Melbourne to book a beach holiday under a Level 3 advisory.

The Congressional Budget Office had earlier projected that gross federal debt would reach about USD 39.6 trillion by the end of fiscal 2026. The USD 40 trillion milestone arriving earlier than that projection highlights the pace at which borrowing has accelerated.Washington is also approaching another politically sensitive debt ceiling. The statutory limit is around USD 41.1 trillion, according to the Bipartisan Policy Center, meaning the government could face another confrontation over borrowing authority as early as winter 2027 if current trends continue.

Treasury Secretary Scott Bessent has sought to ease pressure in the bond market by expanding Treasury buybacks. The Treasury announced that it would double the size of its buyback operations to USD 4 billion per operation, a move intended partly to improve market liquidity and help stabilise trading in longer-dated debt.

Higher Treasury yields at the longer end tend to push up interest rates for mortgages, cars, and commercial loans. With the mountain of debt showing no signs of slowing down, Trump again repeated his frequent demand for lower rates.

Asked about whether Americans should worry about bond market volatility, Trump said, “I don’t think so at all. I think we have a compelling country, and we’re powering through these ridiculous interest rates—they’re ridiculous. Look, ‌when our country ⁠is strong, interest rates should go down.”

Talking about the Treasury, the department, in the last week reported the fourth-highest monthly deficit in the United States’ history, USD 432 billion for July, as tariff refunds turned customs receipts negative for the third month in a row and outlays for Social Security and Medicare benefits for seniors continued to grow.

The deficit for the first 10 months of fiscal 2026 has already exceeded the total gap for all of fiscal 2025, with two months to go in the current fiscal year.

Trump, a key champion of heavy spending across his two terms, saw public debt rising by USD 7.8 trillion during his first term, with more than half of it accumulating during the pandemic response over his last nine months in office.

Since Trump took office a second time in January 2025, the debt load has increased by USD 3.8 trillion, for a total ⁠growth of USD 11.6 trillion across his two terms so far.

Public debt, during Democrat Joe Biden’s tenure, increased by USD 8.4 trillion, marked by heavy COVID-19 recovery spending and big-ticket outlays for infrastructure investment, clean energy subsidies, and other priorities championed by his party.

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As per the Committee for a Responsible Federal Budget estimates, the policy choices of Trump and Biden have increased the federal debt trajectory beyond what would have accumulated under the existing spending statutes when they each took office.

Trump’s “One Big Beautiful Bill Act” will add another USD 4.7 trillion in debt, according ⁠to the nonpartisan bookkeeper for federal lawmakers.

The Republican has branded his second presidency as one focused on cost-cutting, marked by early federal agency job cuts ordered by the non-governmental Department of Government Efficiency (DOGE).

However, much of his spending reductions have targeted so-called “discretionary” programs, the smallest portion of the federal budget. While the United States spends roughly USD 7 trillion annually, and 60% of it is earmarked for so-called “mandatory” programs, including payments for Social Security, Medicare, Medicaid, and veterans’ care, the ratios generally grow to keep pace with living costs.

Another USD 1.1 trillion pays the interest ⁠on US borrowing, the cost of which rises as the debt pile grows and as interest rates climb.

The 2025 budget marked the first time debt service costs exceeded Pentagon funding.

“In the first 10 months of the 2026 fiscal year, interest costs have eclipsed Medicare healthcare outlays to become the second-largest line item in the federal budget, behind the Social Security pension system. The US is spending more to fund the retirement and healthcare costs of the ‘baby boom’ generation, straining the trust funds behind Social Security and Medicare even as payroll and income tax revenues fall short of covering federal costs,” the Committee for a Responsible Federal Budget noted.

For Treasury, buybacks alone cannot solve the underlying fiscal imbalance.

The USD 40 trillion milestone is therefore less important as a round number than as a warning about the trajectory of US borrowing.

For decades, Unlce Sam’s government debt has benefited from the dollar’s reserve-currency status and the depth of the Treasury market. That provides Washington an extraordinary capacity to borrow.

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But that privilege does not make debt costless.

If deficits remain large while interest rates stay elevated, an increasing share of federal revenue will go toward servicing old borrowing rather than financing new investments or public services.

The central question for investors is no longer whether the US can borrow. It is how much it will eventually have to pay to keep doing so.

The figures underline the difficulty policymakers face in reviving household demand, particularly as the prolonged property downturn continues to weigh on household wealth and confidence.

Urban fixed-asset investment fell 6.7% in the first seven months from a year earlier, worsening from a 5.7% contraction in the first half and marking the weakest reading since April 2020.

The decline was broader than property, with real estate investment down 19.2%, infrastructure investment falling 3.6% and manufacturing investment declining 1.7%. Private-sector investment was particularly weak, contracting 9.4%.

Industrial production provided some resilience but also slowed, rising 4.5% in July compared with 5.3% in June. High-tech manufacturing continued to thrive, with a 16.9% expansion, while the production of industrial robots, new-energy vehicles, and semiconductors maintained strong growth.

Computer, communication, and electronic equipment output rose 19.1%, highlighting the growing importance of technology and advanced manufacturing to China’s industrial economy.

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The contrast between resilient high-tech production and weak domestic demand is becoming increasingly pronounced. China’s factories have benefited from strong overseas orders linked to the global artificial-intelligence infrastructure boom, helping exports cushion weakness at home. However, this export-driven support exposes the economy to trade tensions, tariffs, and fluctuations in global demand.

The property market remains a major drag. New home prices fell 0.1% month-on-month in July and 3.2% from a year earlier. Only 17 of the 70 Chinese cities covered by the official survey recorded monthly price gains, suggesting that stabilisation remains concentrated in major urban markets rather than being a nationwide recovery. Falling property values and weak sales continue to suppress construction, investment, and household confidence.

The fading impact of government trade-in subsidies, which previously accelerated some purchases, is also restraining consumer demand.

Auto sales fell 17% year on year in July, while furniture sales declined 8.8%, building and decoration materials dropped 14.2%, and gold and jewelry sales fell 10.1%. The weakness in big-ticket and property-linked spending points to persistent caution among households.

Employment adds to the concern. The official urban unemployment rate rose to 5.2% in July from 5% in June, while youth unemployment remained elevated.

A broader private survey has suggested substantially higher unemployment when people who have left the official labor force sample are included, underlining the uncertainty surrounding the labour market.

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Weak lending is another warning sign. New bank loans recorded their largest monthly decline on record in July, while household borrowing, including mortgages, contracted after a brief recovery.

Banks have become more cautious about borrowers’ repayment capacity as the housing slump and softer labour market reduce demand for credit.

That combination risks reinforcing the cycle of weak spending, subdued investment, and cautious corporate behavior, making a faster policy response increasingly important for Beijing in the coming months and quarters.

Extreme weather also disrupted activity. Three typhoons made landfall in July, with heavy rain and strong winds disrupting factories, ports, and transport networks across parts of the country. Officials said weather effects contributed to the slowdown, but economists argue the weakness predates those disruptions.

The pressure is now shifting to policymakers. China’s leadership has pledged faster fiscal spending and timely measures to support growth, while officials have called for stronger counter-cyclical adjustments and measures to boost domestic demand.

Premier Li Qiang also urged efforts to stabilise external demand, promote employment and incomes, and encourage private investment in infrastructure.

However, major new stimulus for households or the property sector has yet to emerge. Economists expect fiscal acceleration to support public-sector activity but question whether it will be enough to reverse the broader investment decline.

With second-quarter GDP growth slowing to 4.3%, below Beijing’s 4.5%-5% full-year target range, the July figures raise the risk that expansion will remain dependent on a narrow group of export and technology industries.

The challenge for policymakers is to turn those pockets of strength into a broader recovery in consumption, private investment, and jobs.