The latest figures from the Institute of International Finance (IIF) show that total debt reached a record USD 365.5 trillion by the end of June, with emerging markets accounting for most of the increase.

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Two sets of numbers landed in Beijing this summer, and they described what looked like two different countries.

The first came from the customs administration. Chinese exports grew 25% in August in US dollar terms, quickening from 23.9% in July. The monthly trade surplus reached USD 119.09 billion.

Over the first eight months of the year the surplus totalled USD 805.51 billion, which puts the annual figure on course to pass USD 1 trillion for a second consecutive year. No country has ever run a goods surplus on that scale.

The second came from the statistics bureau. Retail sales in July grew 0.6% from a year earlier, down from 1% in June and well short of forecasts.

Fixed asset investment fell 6.7% in the first seven months, the steepest decline since April 2020. Property development investment dropped 19.2%. Urban unemployment ticked up to 5.2%.

This is the dichotomy that now defines the world’s second largest economy. Chinese factories have rarely been more competitive abroad. Chinese households have rarely been more reluctant to spend at home.

With second quarter growth cooling to 4.3%, against an official target range of 4.5% to 5%, Beijing is leaning harder on foreign buyers than at any point in the past decade.

Why the export side is roaring
The export boom is not simply a matter of cheap goods. It is being pulled by the global build-out of artificial intelligence infrastructure, which has lifted both prices and volumes for the high-tech goods China has spent a decade learning to make.

In the first eight months of 2026 the value of high-tech exports rose 42.9%. Semiconductor export values more than doubled, although volumes grew only 4.1%, a gap that shows how much of the gain is price rather than quantity.

Vehicle exports rose by more than half in both value and volume. Electric vehicles, solar cells and lithium-ion batteries did much of the rest of the work.

There is a second, less flattering driver. Weak demand at home means Chinese manufacturers have spare capacity and thin margins, so they sell abroad at prices few rivals can match.

Industries that depend on the domestic market have been fighting brutal price wars, a phenomenon Chinese officials call involution. Deflation at home has become a competitive weapon overseas.

Imports, meanwhile, are flattered by the same AI cycle. August imports rose 28.2% but still missed forecasts, and once semiconductors and petrochemicals are stripped out, the underlying picture is much softer.

Why the home side is stuck
The core problem is household balance sheets. Property once accounted for something close to a third of Chinese growth and holds the bulk of family savings.

New home prices fell 3.4% year on year in July and second-hand prices fell 5.4%, extending an erosion of wealth that is now in its fifth year.

Families who feel poorer save more and spend less, which is exactly what the data show. Chinese households save roughly 30% of income, against about 10% in most developed economies.

Three other forces compound it. Employment insecurity is the first. Youth unemployment has hovered above 16% for much of the year, and the sectors that once absorbed graduates, construction and property services chief among them, are shrinking.

Thin social protection is the second. Healthcare, pensions and eldercare still leave households carrying risk that the state absorbs elsewhere, so precautionary saving stays high.

Fading policy support is the third. The consumer goods trade-in subsidies that propped up appliance and car sales in 2024 and 2025 have run their course, and the base effects are now working against the figures.

Local government finances sit underneath all three. Land sales to developers once funded a large share of municipal spending, and that revenue has collapsed with the property market.

Cash-strapped local authorities are slower to pay contractors, slower to hire and slower to spend, which drains demand from thousands of small cities at once.

Chinese analysts flagged exactly this in July, noting that a pullback in broad fiscal spending and tighter local government rules pushed almost every domestic indicator in the same direction in the same month.

The one genuine bright spot is services. Travel, leisure and transport spending has held up better than goods, and there are signs of a gradual shift in how Chinese households allocate what they do spend.

Officials expect per capita services spending to move towards half of total household consumption over the next five years. It is a real change, but it is starting from a low base and it is not yet large enough to offset a shrinking appetite for cars, appliances and homes.

Prices tell the story. Consumer inflation was 0.5% in July, and core inflation, once gold and trade-in effects are removed, was about 0.8%.

Producer prices fell 0.7% on the month. Firms facing falling prices cut wages and delay investment, which weakens demand further.

That loop is the reason economists describe the slowdown as structural rather than cyclical.

What Xi’s government is doing
Beijing is not ignoring the problem, and its response has broadened considerably in 2026.

The most significant move is institutional. In July the State Council approved the 15th Five-Year Plan for Expanding Consumption, the first time expanding consumption has been given a dedicated national plan of its own.

It targets total retail sales of around 60trn yuan by 2030 and, more importantly, sets out to raise the household consumption rate rather than simply the volume of sales.

Services take priority, with elderly care, childcare, culture, tourism, health, sport and education singled out.

The plan also promises to relax market access in services and revise the rules on paid annual leave, a quiet acknowledgement that people cannot spend on leisure they never get.

The fiscal arm is doing the near-term lifting. The finance ministry says 12.4 trillion yuan has been allocated to education, social security, healthcare and housing, and that childcare subsidies reached more than 25 million infants and toddlers and their families in 2026.

Three new measures took effect on August 1, extending consumption loan interest subsidies to working capital loans and credit card instalments and raising the number of participating lenders from roughly 100 to about 400.

On the investment side, Beijing has deployed an 800 billion yuan new-type policy finance tool, paired for the first time with a central government interest subsidy of 1.5 percentage points for up to two years on eligible loans to smaller private firms.

A 500 billion yuan private investment guarantee programme is being rolled out over two years.

Monetary policy remains what the central bank calls appropriately loose. The People’s Bank of China cut rates on structural tools in January and has signalled room for further reserve requirement and rate reductions, while pledging to keep the yuan broadly stable.

Running alongside all of this is the anti-involution campaign, an effort to curb wasteful capacity, local government subsidy races and destructive price wars. If it works, it should stop deflation feeding on itself.

Why the gap is not closing
The obvious criticism is one Chinese economists make themselves. Most of the money still flows to supply rather than demand. Policy finance tools, guarantees and industrial upgrading strengthen the export side of the ledger that is already strong, while direct transfers to households remain modest and highly targeted.

There is also a timing trap. Strong exports reduce the urgency to fix the weaker half of the economy. Growth targets can be met on the back of foreign orders, which allows the harder decisions on property, land finance and the social safety net to slip.

Scale is the third issue. The consumption plan is a five-year document, and its most powerful levers, pension top-ups, hukou reform and a broader safety net, are the slowest and most expensive to pull.

Childcare payments and loan interest subsidies help at the margin, but they do not change the calculation of a family that has watched the value of its flat fall for four years running.

That is a risky bet, because the export boom is politically fragile.

A surplus heading past USD 1 trillion a year invites tariffs, quotas and anti-dumping cases across Europe, Asia and Latin America, not only the United States.

Washington and Beijing have been exploring reciprocal tariff reductions on about USD 30 billion of goods each ahead of a summit this month, but the wider pressure to rebalance trade is not going away.

For the rest of 2026, the indicator to watch is not the export headline. It is retail sales, core inflation and whether the new consumption plan converts into cash in household hands rather than credit lines for firms.

Until Chinese families feel secure enough to stop saving, the country will keep exporting the demand it cannot generate at home, and the world will keep pushing back.

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Real gross domestic product (GDP) grew 4.43% year on year in the three months through June, accelerating from 3.89% in the first quarter, according to the National Bureau of Statistics.

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Fitch, which has maintained its favourable rating for the Kingdom, still flagged the Gulf major’s dependence on oil and governance indicators as the nation’s “relative weaknesses”.

As per the ratings agency, Saudi Arabia’s economy and public finances had proved resilient despite the ongoing geopolitical volatilities in the Middle East region.

While a ceasefire and the reopening of the Strait of Hormuz eased immediate risks, renewed tensions over Iran’s nuclear programme will remain as the steady problem area that may trigger periodic military actions between Washington and Tehran.

Fitch expects Brent crude prices to average USD 60 a barrel in 2028, down from USD 87 in 2026, as oil markets return to oversupply following the reopening of the Strait of Hormuz. However, the flare-up in tensions between the United States and Iran over the weekend has resulted in the oil prices surging by more than 2%.

As of now, Brent crude futures have gone up USD 1.67, or 2.2%, to USD 77.68, while US West Texas Intermediate crude was up USD 1.59, or 2.23%, to USD 73.00 a barrel.

As per the credit rating agency’s forecasts, Saudi Arabia’s economy is to grow 0.6% in 2026, reflecting trade disruptions due to the Hormuz tensions, before rebounding in 2027 as oil exports and petrochemical production recover.

“Growth is expected to moderate to 2.9% in 2028, supported by an economy-based rollout of giga-projects and continued domestic investment by the Public Investment Fund (PIF), partly offset by lower government capital spending and slower credit growth,” Fitch noted further.

Fitch also expects the kingdom’s fiscal deficit to narrow in 2026 as higher oil prices offset lower production volumes before widening to 4.7% of GDP in 2027 as prices decline. Lower capital expenditure and reduced war-related spending should help the Gulf major narrow the deficit again in 2028.

“The government debt is set to rise to 41.3% of GDP by end-2028, from 31.8% at end-2025, although this remains well below the median for similarly rated sovereigns. Borrowing by government-related entities would continue to increase but remain manageable. The agency also expects Saudi Arabia’s external position to remain strong, with foreign exchange reserves equivalent to about 11.6 months of current external payments in 2026. Sovereign net foreign assets are forecast to remain a key credit strength despite higher borrowing,” Fitch said further.

“A small current account surplus will be seen in 2026 on stronger oil export revenues before a return to deficit by 2028 as lower oil prices and robust domestic demand increase imports. Saudi banks remain resilient, with non-performing loans at 1.1% and a Tier 1 capital ratio of 19.2% at the end of the first quarter. The agency will maintain a neutral outlook for the banking sector despite a deteriorating regional outlook,” it noted.

However, Fitch sees its rating for the Kingdom potentially coming under pressure if public finances weaken materially, government debt continues to rise, or regional security deteriorates significantly enough to disrupt oil exports.

“Conversely, stronger fiscal reforms, sustained higher oil prices or continued diversification of the non-oil economy could support a future upgrade,” the agency concluded.

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The global economy is now expected to grow 3% in 2026, down from an April forecast of 3.1%, a modest slowdown partly offset by artificial intelligence (AI)-driven demand. Growth is projected to rebound to 3.4% in 2027, still below the 3.5% average recorded across 2024 and 2025. Global headline inflation is expected to reach 4.7% this year, up from 4.1% in 2025, before easing to 3.9% in 2027.

“The global outlook is being shaped by two powerful forces pulling in opposite directions: the lingering effects of the energy shock from the war in the Middle East and a technology-driven investment boom,” said Petya Koeva Brooks, deputy director of the IMF’s research department.

The downgrade came after the United States renewed strikes on Iran following attacks on three commercial ships in the Strait of Hormuz, days before a second round of American bombing raids on Iranian targets.

President Donald Trump said he believed the ceasefire between Washington and Tehran was over, a remark that sent Brent crude up as much as 7%, briefly topping USD 79 a barrel. The IMF’s forecast assumes shipping through the Strait of Hormuz begins normalising in mid-July, with prewar conditions restored by March 2027.

Energy prices are now running about 25% above pre-war levels, with the fund pencilling in an average of USD 89 a barrel for 2026.

Deniz Igan, chief of the IMF’s World Economic Studies division, said the global economy had proven more resilient than expected in April, helped by the release of strategic oil reserves and improved energy efficiency, though she cautioned that a collapse of the ceasefire could catch the world economy in a weaker position than before.

The outlook varies sharply by region. The United States is forecast to grow 2.3%, the fastest among major advanced economies, supported by fiscal policy and continued technology-related investment.

The eurozone forecast was trimmed to 0.9%, Japan to 0.6% and Canada to 1.1%, while Brazil’s outlook was raised to 2.4%. China is expected to grow 4.6%, up from April’s 4.4% estimate, and India was downgraded slightly to 6.4%.

Countries at the centre of the AI hardware supply chain fared best. Taiwan, South Korea, Thailand and Malaysia all posted stronger-than-expected results, with South Korea’s annualised first-quarter growth reaching 7.5%, nearly four times the fund’s earlier estimate, despite its heavy reliance on Middle Eastern energy imports.

The Middle East and Central Asia region bore the brunt of the downgrade, with growth cut to 0.7% for 2026 before an expected rebound to 6.5% in 2027. Saudi Arabia’s forecast was reduced by 1.4 percentage points to 1.7%.

The IMF’s update follows a starker warning from the World Bank, which cut its own 2026 global growth forecast to 2.5%, describing the slowdown as the worst hit to the global economy since the Covid-19 pandemic.

The fund urged policymakers to keep monetary policy focused on restoring price stability and to avoid broad-based subsidies or price controls that could distort markets.

Talking about the Iran war, the recent escalation of hostilities between the Washington and Tehran could upend the International Energy Agency’s forecast of a significant oil market surplus in 2027, it said on ‌Friday. While global supply jumped in June with the reopening of the strategically important Strait of Hormuz, supply levels haven’t been able to reach the pre-war levels.

The effective closure of the maritime chokehold had taken out ⁠as much as 14 million barrels per day of crude flows during the peak of the largest oil supply crisis in history.

As per the, IEA ‘s data, global oil supply rose by 4.1 million bpd in June, but remained 9.4 million bpd below pre-war levels. While the energy watchdog sees supply expanding by 7.5 million bpd in 2027 after a 3.7 million bpd contraction in 2026, realisation of the estimates will still be dependent upon the improvement in Hormuz transits.

“An escalation in hostilities on 7-8 July, however, ‌clouds ⁠the outlook and could upend the forecast that sees the market flipping to a surplus next year,” IEA said, adding that a lasting peace agreement is a “must” for oil markets to normalise.

The IEA’s 2027 forecasts imply that supply will outweigh demand by ⁠4.62 million bpd in 2027 from 2026’s deficit of 860,000 bpd, provided producers can restart fields and refiners can resume normal product shipments.

The Paris-based agency also sees global oil demand falling by 1 million bpd this year, before rebounding to rise two million bpd in 2027. In the nearer term, ⁠it sees the peak summer fuel demand season lifting consumption by around eight million bpd when compared with May’s low point at the peak of the Hormuz crisis.

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The approved plans for total spending of 555.4 billion euro will be financed partly through new borrowing worth 203.6 billion euro, including 118.7 billion euro for the core budget. The remaining will come through a 54.9 billion euro infrastructure fund and 30 billion euro from a special defence fund. The proposals will now go before parliament for approval.

Finance Minister Lars Klingbeil said the spending package was designed to strengthen Europe’s largest economy after years of weak growth and underinvestment.

“We want Germany to be a strong and crisis-resilient country. That is why the priorities in the 2027 budget are clear: We want to put our country back on a growth path and create the jobs of the ⁠future in Germany. We are investing in future viability and innovative strength, as well as in security and resilience,” he added further.

Defence remains the budget’s biggest priority. Core military spending will rise by a third to 109 billion euro in 2027, reaching 130.1 billion euro, including Ukraine support and other security expenditure. The government expects defence spending to increase from 2.8% of GDP next year to 3.5% by 2029, following reforms to Germany’s debt brake that allow greater military borrowing. Berlin will now commit a total of 783.8 billion euro to ⁠defence-related expenditure between 2026 and 2030.

Germany has earmarked 11.6 billion euro for Ukraine in 2027 and 8.5 billion euro annually from 2028 to 2030.

“We cannot defend Germany against Putin with a balanced-budget policy. We must make up, in the shortest possible time, for three decades in which no investment was made in our defence capability,” Klingbeil said.

The government also plans to invest 117.5 billion euro in 2027, supported by a 500 billion euro infrastructure fund aimed at modernising transport, energy and public assets.

However, the scale of borrowing has triggered concerns over Germany’s long-term finances. Interest payments are projected to almost double, from 41.9 billion euro in 2027 to 80.7 billion euro by 2030.

Business groups warned that rising debt could eventually squeeze public finances. The Federation of German Industries (BDI), along with German Mittelstand association DMB, while criticising the high borrowing level, sathe Germanost one in every five euros of tax revenue could be absorbed by interest payments by the end of the decade.

“By 2030, nearly one in five euros of tax revenue could be tied up in interest payments,” said BDI chief executive Tanja Goenner.

The budget has also drawn criticism from environmental organisations after the government proposed shifting money from a dedicated climate fund into the regular budget and reducing development aid spending. Klingbeil defended the changes, saying they were necessary to close a 34 billion euro budget gap without undermining Germany’s legally binding climate targets.

Beyond defence, the budget continues to allocate significant resources to welfare programmes and support for Ukraine, highlighting the balancing act facing Berlin as it seeks to revive growth while managing rising geopolitical and fiscal pressures.

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Britain is preparing to spend more on its military than at any point in the last thirty years. The plan covers everything from stealth fighter jets and nuclear submarines to drones, artificial intelligence, and new accommodation for troops.

It positions defence not just as a security matter but as an economic one, with the spending uplift projected to create nearly 60,000 extra direct and indirect British industry jobs by the end of the decade, taking total defence-related employment to more than half a million.

But behind the headline numbers lies a more complicated story, one of an economy under strain, a government in political turmoil, and a threat from Russia that is growing faster than any spending plan can move.

What the Plan Actually Does
The DIP is built on the 2025 Strategic Defence Review, which concluded that Britain’s Armed Forces needed to modernise urgently and move towards what the government calls “warfighting readiness.” It confirms substantial investment in artificial intelligence, autonomy, cyber capability and digital integration, while maintaining major commitments to combat air, the nuclear deterrent and wider force modernisation.

The headline programmes are substantial. More than 8 billion pound will go to the Global Combat Air Programme (GCAP) over the next four years, developing the next-generation stealth fighter jet for the Royal Air Force alongside Japan and Italy.

More than 63 billion pound over the same period will strengthen the United Kingdom’s nuclear deterrent and fund Dreadnought and SSN-AUKUS submarines, a new warhead, and other crucial nuclear work. The government is also purchasing 12 F-35A aircraft and joining NATO’s nuclear sharing mission for the first time.

On land, the plan backs the long-troubled Ajax armoured vehicle programme, the upgraded Challenger 3 main battle tank, and the Boxer wheeled armoured vehicle, within a 19.2 billion pound land domain allocation. A further 26 billion pound over the next decade will go to Project Royal Oak, the biggest naval base upgrade in over 45 years, including major investments at Barrow and Plymouth.

And for the first time, there is serious financial weight behind the technology of future warfare. The Strategic Defence Review signalled that drones, AI and autonomous systems would become central to future conflict, and the Investment Plan gives that vision real financial backing, including 115 million pound to raise the UK’s defences against AI-related threats.

A Nation That Cannot Easily Afford It
There is one critical context that no amount of bold language can paper over, namely, Britain’s struggling economy.

UK GDP is expected to grow by just 0.7% to 1.1% in 2026, depending on the forecaster. The economy actually contracted by 0.2% in the first quarter of the year. Public sector net debt stands at 93.8% of GDP, at levels last seen in the early 1960s, and the government borrowed 132 billion pound in the financial year ending March 2026. Rising energy prices, driven partly by Middle East instability, are pushing inflation back up and keeping the Bank of England cautious about cutting interest rates.

To fund the DIP without blowing up its fiscal rules, the government has had to make difficult choices elsewhere. The package is funded primarily by reallocating budgets from across government departments, with other departments asked to contribute one penny in every pound of their capital budgets.

In practical terms, that means schools, hospitals and infrastructure projects are quietly absorbing cuts so that tanks and submarines can be funded. The government says it has identified 10.3 billion pound in savings now, with a further 4.7 billion pound to be confirmed at Budget 2026.

Some of the pain is visible inside the defence budget itself. Military housing improvements have been delayed. Several programmes have been restructured or cancelled to free up cash.

The DIP openly acknowledges that it inherited a programme in which 47 of 49 major projects were delayed or over budget. That is a sobering baseline from which to launch the most ambitious military spending surge in a generation.

A Minister Quits in Protest
The tension between what the military needs and what the Treasury is willing to provide became very public last month when Defence Secretary John Healey and Armed Forces Minister Al Carns both resigned.

In his resignation letter, Healey accused Prime Minister Keir Starmer of failing to commit the resources needed to defend the country. He wrote that Starmer had been “unable,” and the Treasury “unwilling,” to provide what the nation needed at a time of rising threats. Without adequate funding, he said, he was being forced to make decisions that would reduce the readiness of the Armed Forces, increase the risk to personnel on operations, and could make the country less safe.

Healey also turned the Prime Minister’s own words against him, citing Starmer’s warning at the Munich Security Conference earlier in the year that Russia could attack NATO as soon as 2030.

ALSO READ | As threat of war looms, Europe hikes spending on military and defence equipment

The resignations, the seventh and eighth ministerial departures in a month from a government already reeling from collapsed poll ratings, threw the DIP process into confusion. Dan Jarvis was appointed as the new Defence Secretary, inheriting a plan that had been delayed for months and a department deeply frustrated by the pace of Treasury decision-making. The episode laid bare a fundamental tension at the heart of British defence policy.

The political will to spend exists, but the economic room to do so is tighter than the rhetoric suggests. Analysts at the Institute for Fiscal Studies note that the government has not set out how it will pay for around a third of the increase, leaving an average of 1.2 billion pound a year to be decided at a future budget, with further impacts on other areas of spending, tax, or borrowing to follow.

The Recurring Recruitment Problem
Money can buy equipment. It is much harder to buy people, and Britain’s Armed Forces are running short of them.

The trained full-time force stood at 126,740 on 1 April 2026, down from 133,570 in April 2023, leaving the forces nearly 6,830 personnel below their level three years ago. While recruitment improved slightly this year, the deeper problem is retention.

Voluntary departures account for approximately 60% of outflow, as mid-career professionals with specialised skills leave for better-paying civilian roles.

The DIP attempts to address this with a nine billion pound investment in military housing over ten years, along with pay improvements and recruitment reforms. But housing alone will not fix a culture problem that stretches deep into military life. The Army is smaller than at any point since the Napoleonic era. Recruitment targets have been missed every year for the better part of a decade.

Russia Is Not Waiting
While Britain deliberates, Russia is not standing still. Dutch military intelligence has warned that Russia could build up enough combat power for a regional challenge to NATO within a year after fighting stops in Ukraine, aiming to fracture political unity in the Alliance rather than defeat it militarily outright.

ALSO READ | European defence company Destinus tests deep-strike system Ruta Block 2

The same assessment noted that the Russian armed forces have not only grown larger but have also become more effective than before the war, with significant qualitative improvements in unmanned systems, command and control, and battlefield adaptability.

In 2026, Russian defence spending is projected to reach 180 billion pound and, when adjusted for purchasing power parity, the effective amount Moscow will spend is estimated at USD 400 to USD 500 billion.

Russia has already moved its economy onto a war footing, drawing hundreds of thousands of workers into its defence industrial complex and sustaining large-scale weapons production despite Western sanctions.

Incidents have already tested the edges of the threat. In September 2025, 19 drones entered Polish airspace. Three Russian MiG-31 fighters violated Estonian airspace for over ten minutes. In January 2026, Russia struck western Ukraine just 70 kilometres from the Polish border with an intermediate-range missile, a move the UK, France and Germany jointly condemned as an unacceptable escalation.

Is Britain Ready?
The DIP is a serious document. It is the most comprehensive military spending plan Britain has produced in decades, and it signals a genuine acceptance that the post-Cold War holiday from history is over. But serious analysts are clear-eyed about its limits.

A funding hole of 30 billion pound to 45 billion pound remains between current commitments and the 3% of GDP target, money that is desperately needed to retrofit, re-equip and retrain existing forces for modern warfare. Britain is also not spending in a vacuum. Germany has embarked on its largest military expansion since reunification.

ALSO READ | AI, semiconductors and defence: Japan eyes supercharged economy by 2041

Poland is spending around 5% of GDP. The Nordic states continue to increase investment. Viewed internationally, Britain’s settlement looks closer to keeping pace with an accelerating field than establishing any decisive lead.

Britain is not ready enough yet, but it is moving in the right direction, slowly, under fiscal constraint, and with more political turbulence than the moment demands. The DIP is a necessary foundation.

Whether it becomes an adequate one will depend on decisions not yet made, budgets not yet confirmed, and a Treasury that must eventually reckon with the fact that security is not a line item that can be deferred until the economy improves. In the Europe of 2026, that moment of reckoning may arrive sooner than anyone in Whitehall would like.

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Global growth reached 2.9% in 2025, up 0.2 percentage point from its estimate in January. Its 2026 forecast is down 0.1 percentage point from January, the lowest seen since the COVID pandemic that began in late 2019,” the bank said in its semi-annual Global Economic Prospects.

The global monetary body has lowered forecasts for two-thirds of countries as a result of the war, with the biggest cuts affecting the United Arab Emirates (UAE), Iraq, and other Gulf countries whose energy trade has been hit hard by the conflict, especially due to the Hormuz stalemate.

The World Bank’s stark outlook comes as the war launched by the United States and Israeli strikes on Iran on February 28 drags into the fourth month. The disruptions at Hormuz (with international shipping and energy trade coming under the line of fire) have sent energy prices up sharply, renewing inflationary pressures worldwide and fuelling expectations of tighter monetary policy across the ⁠countries. Fertilizer prices have also gone up sharply, raising concerns about a major food supply crisis.

As per the World Bank’s projections, the average Brent crude oil price may remain at USD 94 for the year, up 36% from 2025. However, the worst disruptions to energy supplies will likely become less severe by the end of July, with global headline inflation seen at 4%.

“Growth could slow to 2.1% if the energy disruptions lasted longer and oil ‌prices averaged USD 115 per barrel ⁠this year, which could drive inflation to ⁠4.4%. The outlook would worsen further, with growth decelerating to just 1.3%, if the energy shock affected financial markets, resulting in lower energy prices, greater volatility, and weaker confidence,” the World Bank noted.

“These risk scenarios show how quickly the outlook could weaken if energy and financial pressure reinforce each other. If the energy shock triggered ‌a financial market shock, confidence could erode quickly,” said Ayhan Kose, the World Bank’s deputy chief economist.

“The global growth may improve ⁠to 2.8% in 2027 and 2028, but the projected figure remains 0.4 percentage points below the average rates seen during the 2010s due to a slew of factors, including slower population growth, slower private investment growth, falling public investment, rising public debt, and slower growth in trade,” World Bank chief economist Indermit Gill said.

“The world economy is a lot less resilient today than it was in 2008 and even as compared with 2018,” Gill noted, predicting the next few years would be marked by high policy uncertainty, inflationary pressures, and high interest rates.

“Weak growth in developing economies has stalled progress toward advanced-economy income levels, with dozens of developing countries other than China and India looking at a “lost decade” in which they saw no progress on narrowing their per capita income gap with advanced economies,” the Global Economic Prospects remarked.

Developing economies have been hit harder by the war, with the World Bank now projecting growth at a post-pandemic low of 3.6% this year, down from 4.4% in 2025. For the American economy, the bank maintained its forecast of 2.2% growth, but that could taper off to 2.1% in 2027 and 2% in 2028. The euro area was expected to ‌grow by 0.8% in 2026, down from 1.4% in 2025. Japan’s GDP was forecast to grow 0.7% in 2026, down ⁠from 1.1% in 2025.

The World Bank forecast GDP growth of 4.2% in China in 2026, a downward revision of 0.2 percentage point, after 5% growth in 2025.

However, the GDP trajectory of the Middle East, North Africa, Afghanistan, and Pakistan will see a massive downward direction, with the ratio getting stuck at 1.6% in 2026, down from 4% in 2025. However, growth in these regions, in 2027, will likely rebound to 5%.

“India remained the fastest-growing large economy in the world, ⁠with its GDP seen growing by 6.6% in 2026, after growth of 7% in 2025. Growth rates in India were expected to remain fairly high for the next two decades,” Gill concluded.

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As per the report, during the quarter, the Kingdom’s economic growth, with real GDP, expanded 3% on a year-on-year basis. Gross Fixed Capital Formation (GFCF), a key measure of investment, increased 5.1% during the same period after contracting through much of 2025.

As per the Saudi Ministry of Interior’s figure, total GFCF reached SR358.3 billion, with the non-government sector accounting for SR319.9 billion, or 89% of total investment. Government investment recorded strong growth, with GFCF on the particular front surging 54% to SR38.3 billion during the quarter.

Inflationary conditions have remained stable, with the Consumer Price Index (CPI) remaining at 1.7% in April 2026. This was mostly due to a 3.8% increase in housing, water, electricity, gas, and other fuels, as well as a 1% rise in both transportation and restaurant and accommodation services. Consumer activity remained resilient, with point-of-sale (POS) transactions rising 11.8% year-on-year in April, indicating continued strength in household spending.

Meanwhile, average Brent crude prices climbed 54.2% year-on-year to USD 102.5 per barrel in April, providing support to oil-sector revenues and economic activity. Labour market indicators also improved, with Saudi unemployment falling to 7.2% in the fourth quarter of 2025, down from 7.5% in the previous quarter.

The SME sector (small and medium enterprises) too witnessed continued growth in financing that accounted for 11.5% of the total credit facilities. Credit facilities extended to the sector reached a record SR468 billion in Q4 2025, up 33% year-on-year.

“Foreign investor participation in Saudi capital markets remained strong, with foreign holdings reaching SR458 billion in May 2026,” the bulletin noted.

Despite the positive indicators, there were several areas of moderation. The Purchasing Managers’ Index (PMI) for the non-oil private sector declined 5.4% year-on-year to 52.8 points in May. However, the reading remained above the 50-point threshold that generally signals expansion.

Talking about the bigger picture, the Kingdom’s real GDP reached USD 1.31 trillion in 2025, with non-oil activities accounting for 55% of the economy, stated the National Transformation Programme 2025 Annual Report, which reviewed progress across economic development, investment, tourism, digital transformation, environmental sustainability and quality of life indicators as the Gulf major moves towards its “Vision 2030” diversification targets.

“Foreign direct investment inflows rose to USD 35.5 billion in 2025, nearly five times the level recorded in 2017, while non-oil GDP expanded by 4.9% during the year. More than 700 international companies have established regional headquarters in Saudi Arabia,” the report remarked.

While 93% of key performance indicators met or exceeded their annual targets, some 90% of initiatives were either completed or progressing as planned.

“Since the launch of Vision 2030, 935 initiatives have been completed, 225 remain on track, and more than 2,200 reforms and measures have been introduced,” the report noted.

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Citing the combination of steady Moroccan improvement and slow South African decline, ADB stated, “While South Africa remains a continental industrial powerhouse, it continues to experience a steady decline in industrial competitiveness.”

Morocco scored higher than South Africa in most of the ADB’s metrics, including the manufacturing sector’s contribution to overall GDP, education levels of the population, gross capital formation, the level of foreign direct investment, the ease of doing business and various indicators of macroeconomic stability, such as inflation and total debt owed by the country.

Morocco was assigned a score of 0.8415, against South Africa’s 0.8396.

The ADB said, “South Africa’s 2024 score was its highest level since 2020, yet still below its pre-COVID performance of 0.8518.” While this reflects the significant impact of recent shocks, it also confirms a longer-term downward trend, with performance declining from 0.8819 in 2010 and reaching a low of 0.8301 in 2016.”

The top ten were completed by Egypt, Tunisia, Mauritius, Algeria, eSwatini, Senegal, Namibia, and Cote d’Ivoire.

While three Southern African countries were in the top ten, two other countries on the continent had seen significant declines. Lesotho, which was ranked as the 16th-most industrialised country in Africa in 2010, slipped to 26th in the ADB’s latest ranking, while Botswana, ranked 9th in 2010, got demoted as the 15th-most industrialised country on the continent.

While Morocco has emerged as Africa’s most industrialised economy, a strong agricultural rebound and sustained investment in major infrastructure projects are projected to help the country grow by 5% in 2026, up from an estimated 4.6% in 2025.

The Organisation for Economic Co-operation and Development (OECD), in its latest Economic Outlook, remarked, “GDP growth is projected to reach 5.0% in 2026 and 3.9% in 2027, after rising to 4.6% in 2025,” while noting Morocco’s resilience despite growing uncertainty in the global economy.

“Growth in 2025 was supported by private consumption and investment, benefiting from lower inflation, stronger consumer confidence, and major public infrastructure programmes,” OECD said.

The report further forecast a particularly strong recovery in agriculture after several years marked by drought conditions. The African country has benefitted from the heavy winter rainfall that has replenished reservoirs across its territory, supporting what the OECD estimates will be a 15% rebound in agricultural production during 2026 before conditions normalise in 2027.

At the same time, infrastructure spending is expected to continue boosting manufacturing and construction activity.

However, in order to remain a growth engine, the OECD suggests Morocco deal with the vulnerabilities to fluctuations in international energy markets due to its dependence on imported energy.

“Approximately 90% of Morocco’s energy needs are imported, making the country exposed to rising global prices and geopolitical tensions. The recent energy price shock is expected to temporarily increase both inflation and the current account deficit in 2026. Inflation, which averaged just 0.7% in 2025, is projected to rise to 3.2% in 2026 before easing again to 1.4% in 2027. Consumption growth is expected to moderate somewhat because of higher inflation but remain solid,” the OECD said.

However, the ongoing Iran war and the stalemate at the Strait of Hormuz have brought an opportunity for Morocco, as disruptions to fertiliser exports from competing producers could create short-term tailwinds for the African nation’s phosphate industry.

However, the OECD outlook also said, “A prolonged conflict could also disrupt supplies for domestic fertiliser production because Morocco depends on imports of ammonia and sulphur from Gulf economies.”

Talking about Morocco’s phosphate industry, fertilisers accounted for 21% of the country’s export revenues in 2025, helping offset some of the impact of higher energy import costs.

“Exports are expected to continue improving over the next two years, supported by stronger external demand and the country’s industrial expansion. However, the current account deficit is forecast to widen to 3.1% of GDP in 2026 and 3.3% in 2027 due to rising import prices. The labour market is also expected to improve gradually. After declining from 13.4% in 2024 to 13% in 2025, unemployment is projected to fall by a further 0.3 percentage points in 2026,” the OECD concluded.

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