The centre-right Tisza Party, led by the telegenic former teacher and activist Peter Magyar, won 53.5% of the popular vote and captured 138 of the country’s 199 parliamentary seats. That is a two-thirds supermajority, the kind that lets a government rewrite constitutional rules if it chooses to. For a country that had grown accustomed to democratic backsliding and institutional decay, the result was genuinely seismic.

But elections are easy compared to governing. Peter Magyar now inherits an economy that is, to put it plainly, a mess. Hungary barely grew in 2025, expanding at just 0.4%, one of the weakest performances in the entire Central and Eastern European region. The government is spending far more than it collects.

Billions of euros in EU funds have been frozen because the previous administration refused to clean up its institutions. A massive influx of foreign investment in electric vehicle factories is running into serious trouble. And the banking sector, which should be a pillar of economic stability, is being squeezed so hard by taxes that its profitability is shrinking.

None of this is impossible to fix. But fixing it will require juggling several extremely difficult tasks at the same time, with very little room for error.

The EU money problem

The most urgent item on Magyar’s to-do list is unlocking somewhere between 18 and 19 billion euros that the European Union has been sitting on because of concerns about rule-of-law violations and corruption under the Orban administration. To put that number in perspective, it represents roughly 11% of Hungary’s entire annual economic output. For a country with a stretched budget and sluggish growth, that money is a lifeline.

The political obstacle to accessing those funds has essentially disappeared with Viktor Orban’s defeat. The EU, which was deeply frustrated with Budapest for years, now has a willing partner in Magyar’s pro-European administration. But the removal of the political obstacle has simply revealed the next one, which is execution.

The European Recovery and Resilience Facility, the main mechanism through which a significant portion of this money flows, has a hard deadline at the end of August 2026. That means the new government has only a few months to legislate the required reforms, implement them credibly, and convince Brussels that the changes are real rather than cosmetic.

That is an extraordinarily tight timeline for any government, let alone one that is just getting on its feet. Bureaucracies do not transform overnight. Institutions that were built to serve one set of political interests do not simply flip a switch and become transparent and accountable. If Hungary misses this window, the consequences are severe. The government would have to impose painful spending cuts to fill the gap, the kind that would hurt ordinary people, derail the modest economic recovery that analysts are projecting, and rapidly erode the political goodwill that Peter Magyar’s landslide victory has temporarily provided.

Bond markets have already signalled cautious optimism. After the election results came in, money started flowing back into Hungarian sovereign debt, with investors pricing in the expectation of lower risk, a cleaner business environment, and restored fiscal credibility. The long-term prize, Euro adoption, is also back on the table now that the new government is genuinely pro-European. But all of that optimism is conditional. It evaporates quickly if the government fumbles the EU funds question.

An economy walking a tightrope

Even if the EU money comes through, Hungary faces a structural fiscal challenge that will not be resolved by a single capital injection. The government deficit is expected to reach 5.1% of GDP in 2026, up from an already elevated 4.6% the previous year.

The EU has formally flagged Hungary through what is known as the Excessive Deficit Procedure, essentially placing the country on a watchlist and demanding corrective action. The Hungarian Fiscal Council calculated that a spending adjustment worth 1.7% of GDP was needed to comply with European fiscal rules, and that estimate was made before things got even worse. By February 2026, the deficit had already burned through roughly half its full-year budget, largely because the outgoing Orbán administration spent lavishly in the run-up to the election.

The pre-election giveaways were considerable. The minimum wage was raised by 11% at the start of 2026. Mothers with multiple children received a lifetime income tax exemption. A fourteenth month of pension payments was disbursed. Bonuses were handed out to military and law enforcement personnel. Housing support packages were extended to public sector workers. Every one of these measures costs real money, and none of it was properly funded. The incoming government is now stuck with the bill.

Here is where things get politically complicated. Peter Magyar campaigned on promises of his own, including cuts to value-added tax, lower taxes on low-income workers, and the preservation of pension and family support programmes. Those are popular commitments. But making good on them while simultaneously reducing a deficit that is already too large requires a level of fiscal creativity that borders on the miraculous.

Something will have to give, and the new government will have to decide fairly quickly what that something is. If it pursues austerity to satisfy Brussels, it risks alienating the voters who just handed it a historic mandate. If it keeps spending, it risks losing the EU funds and spooking the bond markets that are currently giving it the benefit of the doubt.

The projected economic recovery, real GDP growth of 2.3% in 2026, rising modestly to 2.1% in 2027, is real but fragile. It is being driven largely by consumer spending, fuelled by those pre-election wage increases and government transfers. Exports are also expected to pick up as new automotive factories come online and German industrial demand recovers. But inflation remains sticky.

Consumer prices are expected to ease from 4.5% in 2025 to around 3.6% in 2026, but the National Bank of Hungary is keeping interest rates elevated at around 6.25% to make sure inflation does not reignite. Higher borrowing costs are fine for controlling prices, but they make it more expensive for businesses and homeowners to borrow, which dampens investment and economic activity.

The banking squeeze

Hungarian banks have had a rough few years, and 2025 was no exception. The sector’s combined after-tax profits fell by 8% to just under 1.5 trillion Hungarian forints, a direct result of an aggressive tax regime that the Orbán government imposed and repeatedly extended.

The total additional tax burden on Hungarian banks in 2025 amounted to roughly 830 billion forints, composed of a financial transactions fee that surged 31%, an extra-profit tax that climbed 29%, and special sectoral levies that rose by 18%.

The original justification for these taxes was that banks were making windfall profits thanks to the high-interest-rate environment that came with the inflation crisis. The argument had some surface logic to it. When the central bank raises rates sharply, commercial banks typically see their net interest margins widen, meaning the gap between what they pay depositors and what they charge borrowers grows. The government’s position was that this passive profit boost should be partially redirected to the public finances.

The problem is that what was sold as a temporary emergency measure became permanent. Banks have now been operating under this heavy burden for several years, and the effects are visible. Return on equity has fallen. Banks have become more cautious about lending.

Capital that could have been deployed into business loans or mortgages has instead been transferred to the state. The financial sector’s ability to fund the industrial expansion that Hungary desperately needs is being constrained.

To cope, banks have been cutting costs aggressively, primarily by closing branches. The network shrank from 1,401 locations to 1,300 in a single year. But interestingly, overall employment in the sector actually rose, from around 39,800 to 40,500 workers.

That tells you where the money and energy are going. Banks are investing in technology, hiring data scientists, software engineers, cybersecurity professionals, and compliance specialists, while shrinking the frontline retail workforce. Mobile banking, AI-driven risk assessment, and automated customer service are replacing the branch teller.

This digital pivot isn’t a mere cost-saving exercise. Research on banking systems in emerging markets consistently shows that banks which embrace digital infrastructure can reduce their reliance on expensive external debt funding and manage liquidity more efficiently. For Hungarian banks, technology is partly a lifeline in an environment where traditional profitability is being taxed away.

The new government has signalled awareness that the banking tax regime needs to change. Unwinding those levies would immediately improve bank capitalisation, lower the cost of credit for businesses, and stimulate the corporate lending that drives private sector investment. But here again, the government faces a dilemma. Every forint of tax revenue it gives back to the banks is a forint it needs to find somewhere else to plug the fiscal hole.

The EV factory dream

One of Hungary’s biggest economic bets over the past decade has been attracting foreign investment in electric vehicle manufacturing and battery production. The logic was sound. Europe is transitioning away from combustion engines. Batteries are the critical component of the new automotive era. If Hungary could position itself as the battery capital of Europe, it would secure high-value manufacturing for decades.

The results have been impressive on paper. Hungary captured 47% of all Chinese electric vehicle-related foreign direct investment entering the European Union in 2023.

Two projects have become symbols of this strategy. Contemporary Amperex Technology Co. Limited, better known as CATL, the world’s largest battery manufacturer, is building a 7.3-billion-euro gigafactory in Debrecen. BYD, the Chinese electric vehicle giant, is constructing a 4.64-billion-euro manufacturing plant in southern Hungary.

The reason Chinese companies are so keen to invest in Hungary is partly about access. The European Union has imposed tariffs of up to 27% on electric vehicles imported from China, and the American market is essentially closed to them. By manufacturing inside the EU, Chinese firms can sell their products as European-made and sidestep those barriers. Hungary, under Viktor Orban, was a particularly welcoming host, offering generous subsidies and asking few political questions.

Under Peter Magyar, the political equation has shifted somewhat. But the deeper problem with these investments is not political. It is structural. BYD has already delayed the start of mass production at its Hungarian factory until late 2026, and the plant is expected to operate well below its initial capacity targets for at least the first two years.

More troublingly, BYD is simultaneously developing a separate one-billion-euro factory in western Turkey, where labour costs are lower, and production is expected to hit 150,000 vehicles annually by 2027. Hungary simply cannot compete on labour costs with Turkey, and its workforce is already stretched thin. This points to a vulnerability at the heart of the investment model. Hungary has attracted enormous amounts of capital, but much of it is in the form of assembly operations rather than genuine centres of research and innovation.

Chinese companies have historically brought their own workers with them, as CATL did in Germany, where 40% of factory staff were imported from China, rather than training and employing local people. Without requirements to share technology or develop local supply chains, Hungary risks becoming a sophisticated screwdriver factory, assembling components that are designed, engineered, and largely produced elsewhere.

The new government needs to insist on more. That means pushing for technology transfer agreements, mandating local supplier development, requiring meaningful research and development investment, and creating conditions where Hungarian engineers and scientists can genuinely participate in the innovation, not just the assembly. Otherwise, the moment production can be done more cheaply somewhere else, those factories will move.

The digital economy

Hungary’s digital sector is larger and more sophisticated than many people outside the region realise. It accounts for about 6.7% of the country’s total economic output, worth approximately 31.5 billion US dollars in 2025.

The country is a European leader in broadband infrastructure, with 37% of households connected to gigabit-speed internet in 2024, more than double the EU average of 18%. The national strategy aims for 95% gigabit coverage and 90% of public services delivered digitally by 2030.

In advanced manufacturing, the adoption of “Industry 4.0” technologies, which encompasses smart sensors, real-time data analytics, digital twin modelling, and AI-assisted quality control, is transforming what Hungarian factories can produce and how efficiently they operate.

The story of TDK Electronics, a major global manufacturer, illustrates the shift vividly. The company replaced its legacy systems, which included fax machines and isolated software programmes running on outdated computers, with unified digital manufacturing systems that allow managers to monitor and adjust production in real time. The efficiency gains were substantial.

Hungary has also made genuine progress in artificial intelligence (AI) research. The government-backed Artificial Intelligence National Laboratory recently completed a five-year programme involving eleven research institutions. The results included breakthroughs in predictive maintenance for factories, the development of language models specifically optimised for the Hungarian language, and research into autonomous robotics. The follow-up programme, backed by a budget of 20 billion forints, is explicitly designed to turn these research outputs into commercially viable products within three to four years.

Pharmaceutical and biotech companies are emerging as one of the more exciting growth areas. Firms like “Avidin Ltd,” which uses AI to identify cancer drug targets, and “ChemPass,” which develops AI-assisted discovery platforms for new medicines, represent exactly the kind of high-value intellectual property creation that Hungary needs more of.

These are companies that are not easily relocated to cheaper jurisdictions, because their value lies in people’s knowledge, networks, and accumulated research, not in physical assembly capacity.

The main gap in Hungary’s digital story is at the level of small and medium-sized businesses. While the country’s large manufacturers and financial institutions are digitally sophisticated, many smaller companies have been slow to adopt even basic tools like cloud software, digital invoicing, or enterprise resource planning systems.

Some of this is cultural caution. Some of it is cost. Some of it is the result of regulations, including strict data sovereignty laws, that make cloud adoption complicated. Bridging this gap is critical to raising the country’s overall productivity and ensuring that smaller businesses can remain relevant as supply chains become increasingly digital.

The energy transition

Hungary’s solar energy story is one of the more striking examples of policy-driven transformation anywhere in Europe. The government originally set a target of six gigawatts of installed solar capacity by 2030. That target was surpassed by 2025, when capacity exceeded nine gigawatts. The new target is 12 gigawatts, and analysts expect it to be met comfortably.

The success has, however, created new problems. Solar power is inherently intermittent. It generates electricity when the sun shines and nothing when it does not. Hungary’s grid was not designed to manage a system where a huge proportion of generation can disappear on a cloudy day or overnight.

Onshore wind, which would provide a useful complement to solar because it tends to blow when the sun is not shining, has been virtually frozen for a decade due to zoning restrictions. Geothermal energy, which Hungary has a significant natural capacity for, remains largely undeveloped.

The result became painfully obvious during the severe cold period in January 2026, when demand for electricity hit record levels and the grid struggled to cope. The lesson is clear. Hungary needs to invest heavily in battery storage, grid upgrades, and diversification of its renewable energy mix, including wind and geothermal, before the next crisis arrives. The government has put incentive frameworks in place, including tax credits worth 30% of eligible investment costs for battery storage projects, but turning policy incentives into built infrastructure takes time.

What comes next

The Magyar administration faces an exceptional set of challenges simultaneously, each one difficult enough to occupy a government’s full attention on its own. It must unlock billions in frozen EU funds, stabilise a budget that is significantly over its limits and reform the tax environment strangling the banking sector.

It must upgrade its foreign investment strategy from assembly-line attraction to genuine innovation partnerships. It must close the digital divide between large companies and smaller businesses. And it must fix an energy grid that is increasingly unable to handle the very renewable energy it has successfully encouraged.

The decisions made in the next twelve months will shape Hungary’s economic trajectory for the better part of a decade. The foundations are there. The goodwill is there. What is needed now is execution.

The post Hungary turns page after Orban appeared first on International Finance.

As the 2026 midterm elections approach, all three of those pledges are far from being fulfilled, and the reason is a collision between two of his own decisions. First is the decision to strike Iran, and the second is taxing imports at the highest rate in more than a century.

The consequences are showing up where voters feel them most directly, at the gas pump, in the grocery aisle, and at car dealerships. Surveys show consumer confidence at record lows. If the pain persists into November, Donald Trump’s Republicans could face a serious reckoning at the ballot box.

A war that reignited inflation

In late February, Donald Trump ordered joint US-Israeli strikes on Iran. Tehran swiftly responded by closing the Strait of Hormuz, the narrow channel in the Persian Gulf through which roughly a fifth of the world’s oil supply passes daily. That one decision triggered an enormous energy price shock that economists say has reversed much of the hard-won progress the United States made on inflation during 2024 and 2025.

Brent crude, the global oil benchmark, surged from about $70 per barrel before the conflict to over $110 at its peak after Iran shut the strait. When Tehran briefly signalled a partial reopening, prices fell below $90, only to climb back above $105 as tensions remained high. The US benchmark, WTI crude, approached $96. As a direct result, US inflation accelerated to 3.3% in March 2026, the highest rate in two years, driven largely by fuel.

The OECD now warns that US headline inflation could hit approximately 4.2% in 2026, up from a previous forecast of just 3%.

The IMF’s managing director, Kristalina Georgieva, has described the situation as a “reversal” of what had been a positive trajectory for prices. Simply put, two years of painful interest-rate increases to bring inflation under control have been significantly set back in a matter of weeks.

Gas prices as political poison

Since the Iran strikes began, pump prices across the United States have risen by roughly 50 cents per gallon, with station price boards changing numbers almost daily in some areas. In California, the average has already crossed five dollars per gallon.

Nationally, analysts expect average US gasoline prices to head toward three dollars fifty if oil stays above $100. The national average was already at $4.16 per gallon on April 8, up from $3.25 just a month earlier, according to AAA data.

Polling shows that voters are angry and anxious. A Reuters/Ipsos survey in early March found that 67% of Americans expect gas prices to get worse over the next year as a result of the Iran campaign.

That fear cuts across party lines. Over 44% of Republicans and 85% of Democrats share it. Only 29% of respondents approved of the strikes at all, and 64% said Trump had never clearly explained what the United States was trying to achieve.

A separate Pew Research survey later in March found that 69% of Americans were worried about rising fuel costs from the conflict. Nearly six in ten Republicans told Pew that gas prices were their biggest concern about the war, while close to eight in ten Democrats said the same.

That bipartisan pain matters enormously heading into November. When a President’s own supporters feel the squeeze at the pump every time they fill their tank, the political shelter that wartime solidarity usually offers starts to crack. Inflation, unlike foreign policy abstractions, is something voters experience personally and remember when they vote.

More than petrol

The disruption to the Strait of Hormuz has inflicted damage well beyond fuel prices. Oil is a raw material for plastics, fertilisers and chemicals, so when its price spikes, the cost of hundreds of everyday products rises in turn. Shipping routes have been disrupted, adding delays and costs throughout global supply chains.

Researchers at the Dallas Federal Reserve modelled the inflation impact depending on how long Hormuz stays restricted. If it remains closed for one quarter, it adds roughly 0.35 percentage points to 2026 inflation.

Two quarters of closure add 0.79 percentage points. Three-quarters would add approximately 1.47 percentage points on top of existing pressures. These figures translate directly into higher prices on goods ranging from groceries to building materials, even if the war itself ends.

OECD economists also note that because of the way prices ripple through supply chains, households will still be feeling the effects in rent, transport costs and consumer goods as they head to the polls in November.

The tariff tax

The Iran shock is not arriving in a vacuum. It is hitting on top of a separate cost increase that Donald Trump himself created. Namely, his sweeping tariff programme, which has imposed taxes on imported goods at levels the United States has not seen in over a hundred years.

When Trump’s second term began, the average effective tariff rate, the actual percentage tax paid on imports, stood at roughly 2.5%. By April 2025, it had jumped to an estimated 27%, the highest in more than a century.

Legal challenges and negotiated deals have since brought it down to approximately 11.8% as of early 2026, with CNN tracking the effective rate at around 16.8% by the end of 2026.

Even at those reduced levels, the tax burden on imported goods is vastly higher than anything Americans faced before Trump’s second term. Initially, companies absorbed most of the extra costs rather than passing them on to shoppers.

In 2025, the US government collected roughly $187 billion more in tariff revenue than in 2024, almost a 200% increase, and businesses covered an estimated 80% of those costs internally. But that cushion is being depleted.

JPMorgan analysts and industry consultants warn that the corporate share of these costs could fall to around 20% in 2026 as pre-tariff stockpiles run out and businesses begin repricing. The bill is now migrating to household budgets.

What does it cost a family

Research by the Centre for American Progress, drawing on Harvard Business School analysis, found that between October 2024 and March 2025, prices of everyday nondurable goods such as cleaning products and toilet paper rose approximately 5%.

Furnishings climbed around 8%. Clothing jumped roughly 14%. A Yale Budget Lab estimate puts the ultimate annual cost to the average US household at approximately $1,700 once tariffs are fully passed through.

Food is now entering the pressure zone as well. Tariff effects typically take 12 to 18 months to work through to consumer prices fully, meaning peak pressure will fall between April and October 2026, right in the heart of election season.

Food prices were already up 2.9% year-on-year in January 2026. Yale’s modelling implies an effective annual food cost increase of around $1,500 for a typical household once tariff effects are fully felt. Combined with higher fuel bills, those numbers become punishing for families already stretched thin after years of post-pandemic inflation.

The sharpest tariff increases fall on metals, vehicles, electrical equipment and computers, raising the cost of cars, appliances and new home construction. Consumer goods with thin margins and heavy import dependence, such as coffee and fresh produce, have seen particularly sharp price swings.

For a middle-income family, the combined effect feels less like an America-first economic strategy and more like being squeezed from every direction at once.

Collapsing confidence

The University of Michigan’s Index of Consumer Sentiment, one of the most closely watched measures of how Americans feel about the economy, fell to a record low in April 2026. The US dollar has also weakened to its lowest point in four years.

While a weaker dollar helps American exporters, it also makes imported goods more expensive, piling onto the inflation already generated by tariffs and the energy shock. JPMorgan Chase chief executive Jamie Dimon, writing in his annual shareholder letter on April 6, laid out the compounding risk in stark terms.

“Now, because of the war in Iran, we additionally face the potential for significant ongoing oil and commodity price shocks, along with the reshaping of global supply chains, which may lead to stickier inflation and ultimately higher interest rates than markets currently expect,” said the document.

Donald Trump’s standing on the Iran conflict itself remains fragile. The same Reuters/Ipsos poll showing only 29% approval for the strikes found that roughly two-thirds of respondents felt the administration had never given a clear picture of what military victory was supposed to look like. When people see their purchasing power shrinking without a clear benefit to offset that sacrifice, frustration tends to find expression in protest votes, especially in the tightly contested districts that decide control of Congress.

Running out of road

Donald Trump could still seek a diplomatic de-escalation with Iran, but after framing the military campaign as a defining test of American resolve, any visible retreat risks being labelled as capitulation.

He could roll back tariffs to ease household budgets, but that would contradict a central pillar of his economic philosophy and anger the constituencies that have benefited from protection.

The White House has already quietly delayed planned tariffs on some furniture and Italian pasta in early 2026, a move analysts read as political damage control rather than principled policy. Wall Street has coined the nickname “TO,” standing for “Totally Chicken Out,” for the administration’s pattern of pulling back from tariff threats whenever markets or polls react badly, suggesting investors see trade policy as more performative than strategic.

Piecemeal retreats like these, however, may not be sufficient to change how voters feel about their household bills by November.

The Dallas Fed’s research suggests that even a relatively brief Hormuz disruption will keep inflation elevated through the end of 2026. The 12-to-18-month lag for tariff pass-through means price pressures will be near their peak immediately before Election Day.

Independent analysts estimate that Donald Trump’s combined policies will cost typical households between $1,500 and $1,700 per year. Consumer sentiment is already at a record low. Neither has the conflict toppled Iran’s leadership, nor has it delivered the concessions the White House sought.

However, the combined arithmetic of oil shocks and tariff costs is already eroding Trump’s standing at home, and as November approaches, his most dangerous political adversary may not be a foreign one, but the monthly household budget.

The post Trump’s war, tariffs squeeze American wallets appeared first on International Finance.

To integrate Islamic finance into its domestic economy, the country will introduce several key instruments like Murabaha (financing customers through instalment credit sales), Mudaraba (profit-sharing investments or fund attraction), Wakala (providing or attracting funds via agency agreements), Musharaka (financing clients through joint business activities), Salam and Istisna (financing through advance payments for goods) and Islamic leasing (Ijara), which will provide property under Sharia-compliant lease terms.

To support the adoption of these tools, the government will implement specific tax exemptions. While value-added tax (VAT) will not be applied to the markup on goods sold via Murabaha (Sharia-compliant financing structure, often called ‘cost-plus financing’), income generated from investment deposits will be tax-exempt as well. Furthermore, Islamic leasing agreements will be legally equivalent to financial leasing and traditional leasing.

To ensure systemic management and compliance with Sharia standards, the Central Bank of Uzbekistan will have its Islamic finance council. Additionally, banks providing these services will be required to form their own internal councils.

The panel, while operating under the Central Bank of Uzbekistan, will be tasked to develop industry standards, draft regulatory legal acts, provide clarifications on disputed issues, review contracts and internal documentation and ensure overall compliance with Islamic financial principles.

The latest policy move follows the Central Asian country’s Senate’s approval of the law on the introduction of Islamic banking activities in February 2026, marking a significant step toward modernising the nation’s banking sector.

Officials also proposed additional plans, such as establishing bodies like the Tashkent International Financial Centre and the International Centre for Digital Technologies. These will infuse Islamic finance mechanisms into the country and help Uzbekistan position itself more competitively in the global economy amid rising geopolitical uncertainty and intensifying competition for foreign investment. Officials see the country’s natural resources, economic potential, and ongoing reforms as the main engines for creating favourable conditions to attract international companies exploring new markets.

Tashkent International Financial Centre will likely serve as a platform for new investment flows. By 2030, it is projected to attract an additional USD 20-25 billion, contributing up to 1% of Uzbekistan’s annual GDP growth, in addition to creating as many as 15,000 jobs.

The centre will operate under a special legal regime, incorporating elements of the common law system of England and Wales, thereby allowing its governing bodies to adopt independent regulations. The platform will also have a Tashkent International Commercial Court and an International Arbitration Centre to handle disputes, while providing investors with benefits like tax incentives, simplified visa procedures, the capability of freely moving and repatriating capital, and access to modern financial instruments, including digital assets.

The International Centre for Digital Technologies, on the other hand, will operate under the “Enterprise Uzbekistan Brand.” The centre will function under a special legal framework, expected to remain in place until 2100. Within a regulatory sandbox, companies will be able to test new technologies, pay salaries in foreign currency, and operate under international labour and data standards.

The digital centre will also focus on AI, data processing, research and development, and startup support. By 2030, it is expected to attract up to 1,000 companies, create over 300,000 jobs and generate export revenues of up to USD 5 billion.

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Free zones have emerged as a central pillar of Egypt’s investment ecosystem, offering a flexible and business-friendly environment that supports seamless industrial and commercial activities. Through a range of tax incentives and streamlined procedures, these facilities play a leading role in attracting both local and foreign investments, helping to enhance the national economy’s competitiveness and reinforce Egypt’s position as a regional hub for industry, logistics and international trade.

According to the latest government data, Egypt currently has 231 public and private free zones that are either operational or under development. In fact, international bodies like the Organisation for Economic Co-operation and Development (OECD) have also highlighted the importance of these zones.

As per OECD, these free zones have emerged as a key driver of foreign direct investment (FDI) inflows by offering competitive incentives and state-of-the-art infrastructure.

On the other hand, the United Nations Conference on Trade and Development (UNCTAD) reported in January 2026 that Egypt ranked first in Africa for FDI inflows for the fourth consecutive year, supported by investment facilitation measures like electronic company registration services provided by the General Authority for Investment and Free Zones (GAFI).

Free zone projects enjoy benefits like robust legal protections, including safeguards against expropriation or administrative seizure except through judicial procedures, along with extensive exemptions from customs duties and taxes on capital goods, production inputs, exports and imports, as well as value-added tax (VAT) exemptions on domestic inputs and transit goods.

Fitch Ratings also highlighted the advantages, such as tax and customs exemptions, unrestricted import and export activity, and simplified administrative procedures, that are making these strategically located facilities lucrative destinations for investors.

In 2025, 152 new projects emerged, bringing the total number to 1,243, up from 2014’s tally of 1,091. Invested capital, on the other hand, rose by 30.3% to USD 14.2 billion, including USD 2.8 billion in FDIs, compared with USD 10.9 billion in 2014.

“Total investment costs increased by 66.5% to USD 38.3 billion, while exports more than doubled to USD 9.3 billion, accounting for nearly 20% of Egypt’s total exports. Free zone projects now employ more than 248,000 workers nationwide,” Daily News Egypt reported.

Discussing ongoing major projects within these zones, Leoni Egypt produces around 45,000 automotive cables daily across three zones, in addition to operating 15 factories and employing close to 6,000 engineers, technicians and workers. Gid Textile, on the other hand, runs five factories with investments exceeding USD 250 million and 300 production lines. Yazaki Egypt, a private free zone project, has invested around 30 million euro.

Egypt’s roadmap for the 2026/27 financial year, will further implement targeted tax and customs facilitations (including expanding the tax base by increasing tax compliance without imposing additional or significant burdens), which is estimated to further help the free zones. Apart from targeting a growth rate of 5.4%, the country will allocate EGP 90 billion for various economic activity support programmes.

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“Total revenue increased to USD 1,725.2 million in 2025 from USD 1,429.6 million in 2024, or 20.7%, due to higher lease revenues from newly acquired aircraft, including through business combinations, and increased maintenance revenue. Total assets also increased to USD 16,547.7 million in 2025 from USD 13,033.3 million in 2024, as a result of aircraft acquired during the year,” the venture stated.

The Dubai-based company also spent about USD 5 billion on acquisitions in 2025, including the USD 2 billion purchase of rival Nordic Aviation Capital (NAC).

“Around 2025 was another exceptional year for the DAE franchise. We announced and closed the acquisition of NAC. In total, we acquired 280 and sold 111 aircraft. Our fleet of Owned and Managed aircraft grew by 38% to 604 at year-end 2025. Full-year revenues grew 21% while pre-tax profitability increased 43%, delivering continued improvement in pre-tax profit margin and return on equity,” Firoz Tarapore, Chief Executive Officer (CEO) of DAE, said, while mentioning that despite the revenue growth, the balance sheet disciplines of capital adequacy, funding, and liquidity metrics were maintained.

“We intend to be very active on the sell side as well. Mainly for portfolio management purposes,” Firoz Tarapore said during the earnings call on February 4.

Stating that Dubai Aerospace Enterprise Engineering had “a very, very good year,” Firoz Tarapore said that the addition of a new hangar at its Amman, Jordan, added five new widebody and narrowbody capable lines, increasing capacity by approximately 30%. The company now has 22 fully operational lines of heavy maintenance.

“We already were the leading independent airframe heavy maintenance provider in the region, but our new size now takes us closer to the top of the league tables of global independent providers of heavy maintenance. We’re not done yet. I think for us there’s plenty of growth yet,” Firoz Tarapore noted.

The CEO further noted that Dubai Aerospace Enterprise Engineering had raised USD 3.9 billion in long-term debt financing through multiple public and private transactions during the financial year. Revenue grew 13% year-on-year to USD 211 million, while profitability grew 47% to USD 64 million.

The post Dubai Aerospace Enterprise posts USD 702.2 million profit in 2025 appeared first on International Finance.

Approximately 30,000 people have died in the fighting, and, when accounting for starvation and disease, the total number of casualties exceeds 400,000. After Omar al-Bashir was overthrown in a coup in 2019 by the Sudan Armed Forces (SAF) and the Rapid Support Forces (RSF), some believed this could mark a new beginning for the nation. However, the formerly allied factions went back on their promises and began battling for power instead of working to restore civilian rule. This situation serves as a stark reminder of what can happen when political discourse breaks down, and a nation becomes fractured due to political and economic greed.

What the numbers really show

The IMF’s April 2025 World Economic Outlook places Sudan’s consumer price inflation at 100% for 2025 on average, a projection that reflects the scale and persistence of price pressures.

Complementing that, the IMF country page for Sudan shows consumer prices rising at triple digits, with real GDP projected to contract slightly in 2025, highlighting a stagflationary environment, which is a rare combination of high inflation, slow economic growth, and elevated unemployment, a squeeze that is both deep and sustained.

World Bank monitoring confirms continued macro fragility, with the May 2025 “Sudan Economic Update” describing entrenched supply constraints, administrative dislocation, and conflict-driven disruptions that keep inflation elevated and unstable.

A World Bank Macro Poverty Outlook note for Sudan indicates inflation decelerated to 78.4% year over year by July 2025, which is a notable moderation that still leaves households struggling as broad money growth, foreign exchange scarcity, and a persistent parallel premium feed through to prices.

When factories are looted, the farms burned, the roads severed, and banks shuttered or relocated under duress, price signals stop disciplining markets and start reflecting scarcity, fear, and speculation.

What fuels inflation?

How can anyone stabilise prices when the country is being torn apart by a civil war that began in April 2023 and has displaced millions, severed supply chains, and turned food, fuel, and cash into instruments of leverage?

United Nations updates since early 2025 have called Sudan the most devastating humanitarian and displacement crisis in the world.

The World Bank’s Sudan overview makes the connection explicit, describing how conflict has produced wide-ranging economic and social damage that constrains production, distorts logistics, and crushes livelihoods, which elevate price pressures and entrench volatility.

Moreover, standard economic analysis often misses the “shadow economy” of resource theft. In Sudan, this is not a small detail. It is the primary engine of the conflict. Official reports state that Sudan produced 64 tonnes of gold in 2024. This record amount should have injected billions into the banking system. It did not.

The reason is simple. Data indicates that between 50% and 80% of this gold is smuggled out of the country. Economic analysts estimate this results in a loss of up to $7 billion in annual revenue. This massive sum bypasses the government entirely. Instead of backing the currency, the wealth flows directly to armed factions like the RSF, who control key mines in Darfur.

Investigations reveal that over 90% of this gold eventually lands in the United Arab Emirates. The proceeds then return to Sudan in the form of weapons rather than food or medicine. This creates a self-sustaining “Gold-for-Guns” loop. The inflation crisis will never end while the nation’s most valuable asset is used to purchase the very bullets destroying it.

Currency collapse and the price spiral

Currencies are stories about credibility, and Sudan’s story has been a slow-motion implosion that turned precipitous as the war intensified.

Radio Dabanga reported that the US dollar surpassed 2,100 Sudanese pounds on the parallel market by July 2024. This violent depreciation quickly translated to increased prices for imported goods and basic necessities linked to import cost structures.

Further reporting captured the widening spread between official and parallel rates, with banks quoting markedly below street prices as the market premium crystallised into a daily tax on transacting outside privileged channels.

The World Bank’s 2025 update documents an official rate around 2,019 pounds per US dollar by March against a parallel rate near 2,679, quantifying an approximate 21% premium that distorts price discovery, encourages hoarding, and penalises the poorest who cannot arbitrage.

By June 2025, Xinhua described a further slide with the dollar trading at 2,760 on the parallel market and the official rate at 2,100, which is an exchange rate anatomy that maps directly onto continued price instability.

None of this is abstract because every currency gap creates space for speculation, counterfeiting, and rent extraction that show up as empty wallets and thinner meals for ordinary households.

Sudan executed a dramatic exchange rate adjustment in February 2021, moving the official rate from 55 to 375 pounds per dollar as part of a push to unify rates and restore competitiveness, a necessary step that proved insufficient in the face of political upheaval and then all-out conflict.

Any talk of new exchange rate reforms without parallel moves on security, revenue, and banking resilience will founder on the same rocks because credibility is earned through results that people can see on shelves and in markets.

That is why the IMF’s WEO snapshots matter less as forecasts to memorise and more as calls to restore the basic preconditions for price stability, starting with security, access, and institutional capacity.

Human cost of inflation

The numbers tell a story of collapse, but behind them are people, millions of them. According to UN assessments in 2025, tens of millions of Sudanese now depend on aid just to survive. Entire families are on the move, fleeing violence and hunger, while basic services such as water, health, and electricity fall around them.

The World Bank says poverty is surging and the economy has shrunk again, year after year. Latest data suggests that 26 million (around half the population) are starving, and the nation has more people living in famine than the rest of the world combined. There is also a 40% drop in income, and food inflation has tripled. People have no money for food, medicine, or fuel.

Even if inflation slows a little by mid-2025, it is still devastating. Prices are still high. And because food, housing, and transport make up most of what people spend on, it is the poorest who bear the most.

Humanitarian groups like ACAPS have been sounding the alarm for months. Food prices are spiking far above their multi-year averages. For example, the price of grains like Sorghum and millets in 2024 is 500% higher, which is six times, than in 2023. And it seems to be getting worse.

Markets are fractured. Imports are stuck. Traders are being taxed by armed groups at every checkpoint. Sudanese traders are being taxed or asked for protection money by both the Sudanese Armed Forces (SAF) and the Rapid Support Forces (RSF), as well as civil authorities and local militia. The cost of transit for goods itself is appalling. For a single truck to make a return trip in South Sudan, the cost of taxes and bribes to all competing parties is about a whopping $3,000. There are reports that supply trucks pass through almost 100 checkpoints controlled by rival factions on a one-way trip.

It is a human catastrophe that shows, in real time, what happens when war, misrule, and neglect destroy not only a country’s currency but its capacity to care for its people. The displacement map is also a price map because each wave of movement shifts demand toward fragile urban centres and import-dependent corridors where logistics premiums are already elevated.

Almost 13 million people have been displaced, and 8–10 million are internally displaced. It means that they have fled their homes but are still in Sudan. The rest have fled to Chad, Egypt, South Sudan, and Ethiopia. In that environment, the line between profiteering and survival blurs, and public authority’s absence invites every private tax imaginable, each one manifested in the final price paid in cash or in kind.

Inflation erodes purchasing power, social cohesion, trust in institutions, and the perceived fairness of the economic game, which, in turn, depresses participation and investment.

A broken banking system

If conflict is the match, policy failure is the kindling, and fiscal dominance is the wind that keeps the blaze alive.

Sudan’s central bank has not operated with full independence in years, subordinated to urgent fiscal needs that have encouraged money creation and administrative controls rather than credible anchors and transparent rule-making.

The World Bank’s country work points to disrupted cash replacement, mobile money curbs, and administrative interventions that respond to immediate pressures but often add frictions that widen parallel gaps and degrade confidence.

Banking infrastructure has been looted, relocated, or shuttered across key corridors, with more than half the system at times effectively disabled, which means intermediation is impaired and the transmission of policy signals is weak to non-existent.

When broad money grows 29% in six months, as the World Bank notes for early 2025, in a context of supply destruction and FX scarcity, the predictable result is persistent inflation, even if the monthly path wobbles with seasonal harvests and sporadic aid.

There is an irony here that should not be lost on anyone. The more the state leans on the banking system to absorb shocks it cannot price, the more fragile and politicised that system becomes, and the less able it is to perform the basic tasks of payments, savings, and credit without distortion.

There is no visible horizon for the conflict, and the Sudanese people are experiencing one of the worst economic crises of our times, comparable to the people of Palestine, Yemen, and Ukraine.

Humanitarian access must expand quickly as an inflation management tool that floods famine-threatened regions with food and health services, breaks speculative hoarding, and normalises logistics so that price expectations can reset.

Diplomatic leverage must prioritise a ceasefire that enables corridors and markets to function safely because every day of war deepens scarcity and every week of scarcity hardens inflation expectations.

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Nazneen Abbas is a certified financial advisor from the Chartered Insurance Institute of London, and brings more than four decades of experience in navigating the complex intersection of wealth, family relationships, and long-term planning. Through Ma’an, she assists families across the Gulf, including high-net-worth individuals and multi-branch business households. She helps them create intergenerational structures based on empathy, purpose, and foresight.

In an exclusive interview with International Finance, Ma’an founder Nazneen Abbas discusses the changing priorities of legacy planning in the UAE. She highlights the unique challenges faced by first-generation entrepreneurs and the increasing need for governance, clarity, and structured continuity. She explains how Ma’an helps families navigate legal reforms, cross-border complexities, and multi-generational dynamics, ensuring that wealth, values, and intent are preserved across branches and future generations.

IF: What unique challenges do first-generation entrepreneurs in the UAE face when planning to transfer their wealth across generations?

Nazneen Abbas: In the UAE, many of today’s business owners are pioneers who built their enterprises from scratch, often without inherited structures or precedents to follow. Their focus was growth, not governance. The most unique challenge they face is accepting that legacy planning must be treated as a formal part of their business plan. They are often unable to step back from the business and look at it as a family enterprise. To them, it remains my business, built through their own discipline, focus, and hard work.

They often believe that the next generation will naturally follow the same discipline, focus, and systems they relied on. But the coming generation will not mirror their journey, and that is precisely why structured governance, continuity frameworks, and defined responsibilities must be put in place. The challenge often lies in accepting that their families genuinely need those frameworks.

How can Ma’an help guide the UAE’s first-generation business owners through the complexities of ensuring their legacy is passed down successfully?

Our work at Ma’an begins with clarity. We bring families together to understand what legacy truly means to them beyond ownership and valuation. For most first-generation entrepreneurs, the business is their identity. So we help them separate emotional attachment from strategic planning without losing either.

We create frameworks that allow founders and their heirs to discuss everything from governance to liquidity, and from succession roles to shareholder protection. It’s never about telling them what to do; it’s about facilitating a process where they themselves arrive at their own unique solutions.

For instance, when families own multiple entities, we help them design continuity plans through structured financial solutions that account for valuation, liquidity, and tax implications. The goal is to preserve both the business and the relationships that sustain it.

How have recent changes in inheritance laws in the UAE impacted legacy planning for families, especially those with international connections?

The UAE has made remarkable progress in building legal clarity around inheritance and succession. Expat families, both non-Muslim and Muslim, now have multiple avenues to register Wills and structure estates in alignment with their home jurisdictions. For families with global footprints, these changes have been transformative. They can now align UAE assets with offshore trusts, foundations, and holding companies. That harmony between local and international structures is what gives true continuity.

What are some of the most significant legal hurdles that families in the UAE still face when planning for succession, and how can these be overcome?

The main challenge is fragmentation. For instance, families can tend to have real estate under one name, corporate holdings under another, and life’s savings scattered across jurisdictions.

Another hurdle is understanding how inheritance laws interact across borders. At Ma’an, we bring this coordination into one framework to ensure that every legal structure speaks to the others. It’s what prevents future conflict and ensures that the founder’s intentions hold long after they are gone.

How does Ma’an approach multi-generational wealth planning, particularly in the context of extended family structures common in the Middle East?

Most established business families in the Middle East are rarely nuclear. Many come from South Asian and Southeast Asian cultures where extended families traditionally live together, and it is common to find multiple family members involved in the same enterprise.

Our approach begins with acknowledging that we are not here to advise families on what to do. We act as mediators. We provide the infrastructure to bring the decision-making members of the family together around one table. From there, we work to understand the shared vision of the family, because our aim is not just to distribute wealth, but to carry forward the family’s values and intent.

As we often say, clarity at the top prevents confusion at the bottom. By helping the key members articulate what the family stands for and where they want to go, we establish a foundation that guides leadership transition, participation, and continuity across generations. Ultimately, our aim is not just to redistribute wealth but also wisdom.

What are the key considerations for families with diverse branches when planning for wealth transfer in the Middle Eastern context?

The more diverse the family branches, the more important the framework becomes. When several members, entities, or assets are involved across generations, the structure must be designed thoughtfully and specifically for that family.

Since no two families are alike, the solutions we offer differ markedly. For some, it may be a foundation, for others, holding companies, for some, it may be well-structured Wills, and for others, family constitutions or even perpetual family banks. Every family’s needs, culture, and vision are different, so the continuity framework must reflect their unique reality.

Our role is to provide the right mechanisms for the right family to ensure that their wealth, values, and governance evolve cohesively across branches and generations.

How do you ensure that the needs of children of determination are fully integrated into a family’s legacy planning strategy?

This is one of the most sensitive and deeply human parts of our work. For families with children of determination, legacy planning goes beyond inheritance and ventures more into security and dignity.

We design special frameworks that ensure these children are financially protected for life while maintaining their rights within the broader family structure. This may involve setting up dedicated financial solutions or trusts that safeguard long-term care, education, and medical needs. More importantly, we help parents communicate these provisions to siblings so that there’s awareness, empathy, and inclusion. The most sustainable plan is one that the whole family understands and supports.

What are some of the common misconceptions families have when planning legacies for children of determination, and how does Ma’an address these?

Contrary to common assumptions, families are generally well aware of their responsibilities. They come prepared, often having already drafted Wills, appointed trustees, and documented care instructions.

The real misconception lies in placing too much burden on siblings. So we help families move beyond the basics of naming trustees or allocating responsibilities. We create detailed financial plans, often in the form of structured, recurring income streams, so that funds reach the sibling supporting the family in a timely and responsible way. This avoids the challenges of easy lump-sum access, which can be mismanaged even without bad intent, especially in emergencies.

What makes the UAE an attractive destination for international families seeking to structure their estate plans, and how does Ma’an assist them in this process?

The UAE has positioned itself as one of the most progressive jurisdictions globally for estate and succession planning. The legal infrastructure provides flexibility for expat families with various solutions. In addition to the civil-law system used by UAE courts, there are internationally recognised financial free zones like DIFC and ADGM, independent jurisdictions with their own common-law frameworks, regulators, and courts.

For us, it is a case of creating a bridge between intent and implementation. We help families align their UAE structures with global ones. Our role is to make sure the entire ecosystem functions seamlessly, without conflict or duplication.

What are the key cross-border challenges you encounter when dealing with international estate planning, and how can these be managed effectively?

The most common challenge is jurisdictional overlap, where assets, heirs, and governing laws exist in three or four countries. A Will valid in one jurisdiction may be contested in another, or tax treatment may vary dramatically.

We manage this by building collaboration across disciplines. Our framework integrates legal, financial, and tax perspectives from the start. We make sure the framework doesn’t wait for problems to arise but has already accounted for what’s to come. The goal is to ensure every document, every Will, trust, or foundation, works as part of one living plan rather than isolated pieces.

What do you believe is the most important factor in building a successful legacy plan that truly reflects a family’s values and vision?

Authenticity. A family’s legacy must mirror who they are, not what others think they should be. Too often, families replicate structures they’ve seen elsewhere without asking whether those structures reflect their own values.

When we work with clients, we start by asking questions that have nothing to do with money: What principles guided your journey? What values should your name carry forward? Once those answers are clear, the structures follow naturally. A successful legacy plan is a translation of a life’s purpose into continuity.

As someone with decades of experience in financial advisory, what message would you give to young entrepreneurs just starting to think about their legacy?

There are two parts to this. For young entrepreneurs who are second or third generation, their journey often depends on what the family elders have put in place. If a patriarch or matriarch has already created strong structures such as a family constitution, governance frameworks, or estate plans, the younger generation benefits from clarity and continuity. Their responsibility is to understand and follow the systems laid out before them.

For those who are first-generation creators, legacy is not something they typically think about early. But as they begin their professional journey, they should consider simple preparatory measures such as basic structures that keep their finances clean, organised, and future-ready. As life progresses and their enterprises grow, they can transition to more sophisticated solutions. Legacy planning does not need to start big. It just needs to start with intention.

The post Empathy guides wealth planning, says Ma’an founder Nazneen Abbas appeared first on International Finance.

In 2020, he posed a question regarding why the economic recovery was being framed as a V or a U when the reality was far more disjointed. Ivan wrote that some would bounce back while others would not recover.

This dynamic is formally known in sociology and economics as the “Matthew Effect.” The term was coined by sociologist Robert Merton in 1968 and describes a process of cumulative advantage.

It traces its sentiment back to the biblical Book of Matthew 25:29, which states that everyone who has will be given more and will have an abundance, but from the one who does not have, even what he has will be taken away. In the economic landscape of late 2025, this ancient text reads less like a parable and more like a precise description of the divergence between capital owners and wage earners.

Mark Zandi, the chief economist for Moody’s Analytics, suggests that this structural divergence began in the 1980s during the Reagan era, when productivity growth began to outpace median wage growth. However, the data from 2025 suggests that this long-standing trend has accelerated into a profound fracture.

The upper arm of this K-shaped economy is being driven by an unprecedented concentration of consumption among the wealthy. Research conducted by Mark Zandi at Moody’s Analytics revealed that in the second quarter of 2025, the top 10% of wealthiest Americans were responsible for 49.2% of all consumer spending. This figure represents the highest level of spending concentration since record-keeping began in 1989.

The economy has become so lopsided that the richest Americans essentially account for half of all economic activity. This concentration distorts aggregate economic data. When the top 10% continue to spend lavishly on luxury goods, travel, and services, it masks the severe contraction occurring in the bottom 90%. High-income households have benefited from a wealth effect driven by soaring asset prices, including record highs in the stock market and continued appreciation in home values.

Lisa Shalett, the chief investment officer at Morgan Stanley Wealth Management, has raised alarms about this disparity. In a research note from November 3, 2025, she described the income inequality data as completely wackadoo and noted that the widening chasm between the haves and have-nots is critical to understanding the current economic cycle.

While the wealthy propel the markets to new heights, the lower arm of the K is extending downward with increasing velocity. This is visibly manifested in the earnings reports of major fast-food and fast-casual restaurant chains, which have historically served as reliable indicators of lower-income spending power.

Chains like McDonald’s and Chipotle have reported softening traffic as their core customers pull back on spending. Since 2019, the price of a chicken burrito at Chipotle has risen from $7.45 to $10.80 in 2025, while a McDonald’s Big Mac combo has jumped from $8.19 to $11.29. These price increases have forced a trade-down behaviour where consumers abandon fast-casual dining for home cooking or discount grocery options.

Dollar General reported a 4.6% increase in net sales in the third quarter of 2025, which executives attributed to share gains in consumables as financially pressured shoppers hunted for value. This shift indicates that the lower-income consumer is not merely cutting back on luxuries but is struggling to afford basic conveniences.

This performative wealth signals a desire to participate in the upper arm of the K even as financial reality confines consumers to the lower arm. Charitable organisations are working overtime, with the Portland Press Herald Toy Fund reporting a notable influx of struggling families trying to keep the Christmas spirit alive despite cutting back on their expenses.

The labour market mirrors this bifurcation. While the headline unemployment rate remained relatively low at 4.4% in November 2025, beneath the surface lies a story of two distinct job markets. Companies are retaining talent but aren’t hiring anymore, because of which the youth unemployment rate for those aged 16 to 24 reached 10.4% in September 2025.

Gen Z is struggling to find work as entry-level job openings declined 29% since 2024. A part of the reason is that AI is wiping out low-skilled jobs. Now, the American youth from poor and lower-middle-class families can’t even get their foot on the rung of the career ladder. This is an important development, as resentful young people can create significant unrest in a nation.

There is also a white-collar recession. American employers announced 71,321 job cuts in November 2025, a 24% increase from the same month in 2024. Over 153,000 job cuts were announced year-to-date in 2025 in the IT sector as firms pivot toward AI and efficiency.

The disconnect is further highlighted by the fact that despite these layoffs, the broader layoff rate remains historically low because companies are reluctant to let go of workers in a labour-constrained environment.

Policy impact of ‘Big Beautiful Bill’

The policy landscape of 2025 has played a significant role in calcifying this economic divide. The “Big Beautiful Bill” became law on Jul 4, 2025. The bill cuts taxes on overtime pay and tips, provides additional tax deductions for seniors, and introduces a new deduction for auto loan interest. However, it also makes a $3.4 trillion cut to social security for the next ten years, to make up for the lower tax revenue.

Medicaid and the Supplemental Nutrition Assistance Programme (SNAP) will take a huge hit with $1.4 trillion in slashed government funding. The government is cutting social security and lowering taxes for the rich, which is a wealth transfer mechanism from the poorest households to the richest in the country.

Trade policy has further exacerbated the strain on the lower arm of the K. The administration implemented widespread tariffs in 2025 with the stated goal of protecting American industry. However, the Yale Budget Lab estimates that these tariffs function as a regressive tax. The average annual cost of the 2025 tariffs for a household in the bottom income decile is approximately $900. While this is lower in absolute terms than the $3,900 cost for the top decile, it represents a much larger share of income. The burden on the bottom decile is 2.4% of their post-tax income compared to just 0.8% for the top decile. This policy directly erodes the purchasing power of those least able to afford it.

The administration had promised a tariff dividend check of $2,000 to offset these costs for working families. Trump fought his tariff war on the promise that he would give the American people a piece of the tariff dividend and bring jobs back to America. No such dividend arrived in 2025, and Treasury Secretary Scott Bessent clarified that it is unlikely till mid-2026 and that there is also the question of whether the Supreme Court would uphold the legality of the tariffs.

And the math doesn’t add up either. The tariffs generated approximately $120 billion so far, which is not enough to send $2,000 checks to 150 million Americans. It would cost nearly $300 billion to do so. This leaves low-income households paying the higher prices associated with tariffs without receiving the promised financial relief.

The lock-in effect

The housing market stands as perhaps the most formidable barrier between the two arms of the K-shaped economy. A phenomenon known as the lock-in effect has paralysed the market and created a distinct advantage for existing homeowners. As of late 2025, approximately 80% of mortgage holders have interest rates below 6%.

These homeowners are effectively shielded from the current market reality, where the average 30-year fixed mortgage rate hovered around 6.34% in December 2025. This disparity has created a two-tiered housing society. Existing owners are building equity and enjoying low monthly payments that were secured during the pandemic era of cheap money. Aspiring buyers, particularly Millennials and Gen Z, face a market where the income needed to afford a median-priced home has nearly doubled since 2020.

High interest rates have not only made mortgages more expensive but have also suppressed inventory. Homeowners are unwilling to sell and trade a 3% mortgage for a 6% one, which keeps the supply of homes for sale near 30-year lows.

This lack of supply keeps prices historically high despite the elevated rates. Consequently, renters find themselves trapped. The housing ladder, once the primary vehicle for middle-class wealth creation in America, has been pulled up out of reach for those not already on it.

A fracture that deepens

As 2025 draws to a close, the mechanisms driving the K-shaped economy appear to be entrenching themselves further. The Federal Reserve’s restrictive monetary policy, while necessary to fight inflation, disproportionately hurts those who rely on borrowing. The fiscal policies of the One Big Beautiful Bill Act reinforce the advantages of capital owners while fraying the safety net for the vulnerable.

The rich will continue to accumulate wealth through assets and favourable tax treatment, while the poor and the middle class will continue to navigate a landscape of high costs and limited mobility. The question remains regarding how long this divergence can sustain itself before the tension snaps the economy entirely.

With consumer spending so heavily reliant on the top 10%, any shock to asset prices could cause the upper arm of the K to falter. If the wealthy pull back, the illusion of resilience provided by the aggregate data will vanish, revealing the fragile state of the broader economy beneath. Until then, the United States remains a nation of two distinct economies operating in parallel but moving in opposite directions.

The K-shaped economy in 2025 is not a theory or a chart, but a lived reality that shapes everyday life, determining who can buy a home and who must rent, who can retire and who must keep working, and who can afford abundance while others cut back. Wealth, opportunity, and security continue to move upward, while costs, risk, and uncertainty are pushed downward, reinforced by policy choices and a stagnant housing market.

The economy seems strong mainly due to the spending of the wealthiest households. However, this strength is limited and fragile. Without better wages, improved housing access, and a more robust safety net, the divide will deepen, leading to enduring social and political tensions.

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According to the Qatar News Agency (QNA), the first was an agreement on the promotion and mutual protection of investments signed by Qatar’s Minister of Commerce and Industry, Sheikh Faisal bin Thani bin Faisal Al-Thani, and Uruguay’s Minister of Foreign Affairs, Mario Lubetkin. These pacts are part of efforts to create a new legal structure that facilitates bilateral investments, apart from enhancing confidence in investors, providing equal treatment and shielding investors from non-commercial risks. These agreements also allow for the free transfer of funds and adopt the highest global standards for dispute resolution.

QNA described the agreements as a key stride in expanding the scope of economic and commercial cooperation between the two countries and in opening new channels of mutual investment, particularly in key sectors and services. The two countries also agreed to eliminate double taxation of income and tax evasion and avoidance, with Qatar’s Minister of Finance, Ali bin Ahmed Al-Kuwari, and Lubetkin signing a document in that direction.

At the signing ceremony, Al-Kuwari stressed the significance of the tax agreement, saying, “It will contribute to supporting international transparency standards through the exchange of documented financial information, alongside strengthening bilateral economic relations between the two countries.”

The tax treaty will eliminate double taxation, eliminate avoidance of taxes, and ensure that individuals are not treated unfairly. The agreement is also anticipated to strengthen broader economic and trade cooperation between the two countries and provide opportunities for greater investment, particularly in high-growth sectors and services. Qatar hopes the deal will deepen bilateral relations and advance mutual interests. Al-Thani and Lubetkin have already had discussions on strengthening and expanding business, investment, and industrial cooperation between the Gulf nation and its Latin American counterpart.

“The signed agreements will become operative upon completion of ratification procedures in accordance with each nation’s domestic laws,” QNA concluded.

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Among them are the six grandchildren of the late business tycoon Goh Cheng Liang, founder of Wuthelam Holdings, which manufactures paint and coatings. Liang died in Singapore in August, aged 98. Each grandchild inherited stakes in a public company worth more than USD 1 billion. On the other hand, 196 “self-made” business leaders became billionaires this year, with a collective wealth of USD 386.5 billion, UBS said.

“These heirs are proof of a multi-year wealth transfer that’s intensifying,” UBS executive Benjamin Cavalli told Reuters.

The study was conducted on the basis of UBS’ tally of super-rich clients and a database that tracks the wealth of billionaires across 47 markets across the world.

As per the bank’s calculations, at least USD 5.9 trillion will be inherited by billionaire children over the next 15 years. Most of this inheritance growth will take place in the United States, with India, France, Germany, and Switzerland next on the list.

“However, billionaires are highly mobile, especially younger ones, which could change that picture. The search for a better quality of life, geopolitical concerns, and tax considerations are driving decisions to relocate,” the UBS study added.

In Switzerland, where USD 206 billion will be inherited over the next 15 years according to the bank, voters recently overwhelmingly rejected a proposed 50% tax on inherited fortunes of USD 62 million or more, with critics predicting that the move could trigger an exodus of wealthy people. Not only Switzerland, but Europe in general is facing calls to introduce a wealth tax on the international elite. However, voices against such policy moves are making their points loud and clear as well.

“Switzerland, the UAE, the United States, and Singapore are among the billionaires’ preferred destinations,” UBS’s Cavalli noted.

In October 2025, the French parliament voted against a proposed 2% tax on fortunes over 100 million euros. Italy, which has attracted many wealthy residents thanks to its flat-tax regime for foreign income, has set out plans to increase the levy by 50% to 300,000 euros a year from 2026.

The United Kingdom, which distanced itself from reports of implementing a formal wealth tax, officially ended non-domicile status in 2025. Under the previous arrangement, British residents who declared their permanent home as overseas could avoid paying tax on foreign income and gains. The Keir Starmer government has also announced plans for a council tax surcharge, labelled a “mansion tax,” on homes worth more than 2 million, as Chancellor Rachel Reeves introduced her second budget in November.

In 2024, Spain, Brazil, Germany, and South Africa signed a motion at the G20 for a minimum 2% tax on the super-rich to reduce inequality and raise public funds. As per a study by the leading French economist Gabriel Zucman, the move could net up to USD 250 billion in extra revenue.

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