Global economy proves resilient to geopolitical volatility, but key markets are threatened by shifts in international trade

The global economy is proving more resilient than many expected to the ongoing impact of trade tensions and extreme policy uncertainty, according to research from the World Bank. With that said, the operating environment for multinationals continues to confront financial headwinds, from cyclical risk factors (including the ongoing productivity challenge facing Western economies in particular) to tighter financial conditions that put pressure on debt-laden industries and fiscal restraint across industries reliant on public infrastructure spending.

Services, retail, chemicals and construction remain the sectors most vulnerable to corporate distress, while participants in the commercial real estate market in jurisdictions such as Mainland China face significant refinancing demands as a wave of loan maturities approaches in the near term. Some infrastructure assets including those relating to the energy transition also continue to face challenges.

Trade tensions create mixed outlook for leading economies

As our report shows, the outlook for the year ahead is fragmented. This is particularly so in Europe, where levels of distress in Germany remain the highest in the Eurozone. Little respite is expected in 2026 with the country’s dependence on industrial exports leaving it heavily exposed to geopolitical headwinds and volatility in the global trade environment.  

In the UK, a rise in disputed restructuring plans has led some creditors and sponsors to consider alternative methods of restructuring and raising new liquidity, such as liability management exercises (LMEs) or enforcements coupled with the use of contractual liability release mechanisms. However, European and UK market practices and legal regimes have generally made it harder to use such alternatives to achieve contentious non-pro-rata outcomes similar to those seen in some U.S. LMEs.  

There has also been increasing pushback from affected creditors to some of the more aggressive restructuring proposals in the U.S., Europe and Asia Pacific, both at the negotiation stage as well as in court. Market participants will be watching closely this year to see whether these challenges and execution risks drive more companies to seek consensual solutions, at least as an initial step. 

In the Middle East, national economies are growing strongly on the back of policy measures designed to accelerate their transition away from fossil fuels. Maturing legal regimes in both the United Arab Emirates and Saudi Arabia—both of which have implemented reforms to their restructuring and insolvency regimes in recent years—have sparked an influx of investment from international private capital providers. Corporates in distress can now tap deeper pools of capital, and a wider range of financial solutions. 

In the U.S. large corporate bankruptcies have hit their highest levels in 15 years as rising costs, tighter credit conditions and ongoing geopolitical volatility continue to exert pressure on businesses and households.  

However economists expect U.S. stimulus this year in the shape of federal tax cuts, lower interest rates, and potentially reduced drag from tariffs, offering cautious optimism that business conditions will improve in the months to come.