Sustainable Trade and Finance, 23 Rue Ferdinand-Hodler, Geneva (2026)

27/08/2026

EUROPE'S NEW ENERGY SHOCK: WHAT THE SPRING 2026 FORECAST MEANS FOR BUSINESS
The recovery that never quite found its footing has hit another wall. On 21 May 2026, the European Commission published its Spring Economic Forecast, and the headline is stark: a renewed conflict in the Middle East has triggered a fresh energy shock, reigniting inflation and shaking economic confidence across the continent. For businesses operating in or exposed to Europe, the implications are immediate and material.

Growth Revised Down, Recovery Deferred
EU GDP growth, which reached 1.5% in 2025, is now projected to slow to just 1.1% in 2026 — a downward revision of 0.3 percentage points from the Commission's autumn projection of 1.4%. The euro area fares slightly worse, at 0.9% in 2026 and 1.2% in 2027. A modest EU-wide rebound to 1.4% is expected in 2027, but only if energy market tensions ease as futures curves currently imply.

Beneath the aggregate numbers lies considerable heterogeneity. The United States, as a major net energy exporter, has seen its outlook strengthen — buoyed by AI-related investment and favourable terms of trade. Europe remains structurally exposed to imported energy costs, even as it has materially reduced fossil fuel dependency since 2022. In our view, this divergence will shape transatlantic strategy conversations for the remainder of the year.

Inflation Returns — But This Time Is Different
Inflation in the EU is forecast to reach 3.1% in 2026, a full percentage point above the autumn projection, before easing to 2.4% in 2027. In the euro area, the picture is similar: 3.0% this year, declining to 2.3% next. March and April data already confirmed a strong surge in energy prices, with rapid pass-through to headline inflation.

There are, however, important differences from 2022. The EU has expanded renewable capacity, weakening the gas-to-electricity price linkage. Industry and households have cut energy use considerably. And the economy entered this shock in a more stable phase of the business cycle, without the post-pandemic overheating that amplified the earlier episode. These structural buffers should limit — though not eliminate — the damage. We read this as cautiously encouraging: the current shock, while serious, is unlikely to spiral in the way 2022 did.

Labour Markets Soften, but Hold
Employment growth is projected to slow to 0.3% in 2026, edging up to 0.4% in 2027, while the unemployment rate stabilises at around 6%. The long-term decline in EU unemployment has, for now, come to an end. Nominal wages are decelerating less than expected, growing at around 3.5% in 2027 as they adjust with a lag to higher inflation. For employers, that means real labour costs remain elevated; for workers, purchasing power is being eroded more slowly than in the last energy shock.

Fiscal Space Under Pressure
The EU's general government deficit is projected to widen from 3.1% of GDP in 2025 to 3.6% by 2027, reflecting subdued activity, rising interest expenditure, increased defence spending, and new measures to shield consumers and firms from energy price spikes. The debt-to-GDP ratio is set to climb from 82.8% at end-2025 to 85.3% at end-2027, driven by higher primary deficits and an increasingly unfavourable interest-growth differential. Fiscal policy will be slightly expansionary this year — supported by the final phase of EU Recovery and Resilience Facility disbursements — before turning broadly neutral in 2027.

Switzerland: Resilient but Not Immune
Switzerland's GDP expanded by 0.7% quarter-on-quarter in Q1 2026. Inflation remains notably contained by European standards, at 0.9% in May 2026, though this marks an uptick from 0.5% earlier in the year. The unemployment rate stood at 5.0% in March 2026.

For Swiss-based businesses, domestic conditions are comparatively benign, but the country's deep integration with European supply chains, capital markets, and export demand means a slowdown across the EU — particularly in Germany — will be felt. Transfer pricing arrangements, intercompany financing structures, and cross-border deal valuations all need to reflect a weaker continental growth trajectory.

Risks Tilt to the Downside
The Commission is clear-eyed about the balance of risks. A prolonged Middle East conflict and more gradual energy supply normalisation than futures markets imply would produce stronger inflationary pressures and weaker growth — potentially wiping out the modest 2027 rebound entirely. Trade tensions remain a latent concern: the prospect of higher US tariffs on key EU exports, particularly in the automotive sector, adds further uncertainty. Private consumption growth is projected to decelerate to just 1.1% in 2026, and the current account surplus is expected to narrow from 2.4% of GDP in 2025 to 1.7% this year.

What This Means for Business
In our experience, the forecast reinforces the need for scenario planning that genuinely accounts for prolonged low-growth, higher-cost environments — not as a tail risk, but as a baseline. M&A activity should be stress-tested against tighter financing conditions and compressed consumer demand; valuations anchored in the 2025 outlook require recalibration.

In financial services and banking, widening government deficits and rising debt ratios create both opportunity and risk — sovereign credit dynamics matter again, and regulatory capital planning must absorb the possibility of a less benign interest rate path. For transfer pricing professionals, the combination of shifting trade flows, elevated input costs, and evolving intercompany arrangements calls for a fresh review of benchmarking assumptions and functional analyses.

Risk management frameworks, too, deserve attention — and in our observation, many have not been meaningfully updated since the relative calm of 2024–25. The forecast's scenario analysis — in which energy prices rise significantly above futures curves, peaking in late 2026 — is not a remote contingency. Businesses with material European exposure should ensure their hedging strategies, supply chain redundancies, and contingency budgets reflect this.

Looking Ahead
Europe is not in crisis, but it is navigating a period of genuine fragility. The structural progress made since 2022 — in energy diversification, fiscal coordination, and labour market resilience — provides a degree of insulation, but it does not provide immunity. The firms that will emerge strongest are those that treat macroeconomic intelligence not as background reading, but as an active input to decision-making. We will be watching the autumn update closely — and in the meantime, the case for staying alert to shifting macro conditions has rarely been stronger.

(by Doğan Erbek and STF Team) https://www.sustainabletradeandfinance.com/about-us-dogan-erbek/

25/08/2026

AGENTIC AI AND THE EVOLUTION OF MOBILE DEVICES
China’s smartphone makers are increasingly positioning agentic AI as a product differentiator as domestic handset sales slow. Recent reporting indicates that several Chinese brands have trimmed shipment targets, reflecting softer demand and cost pressure across the supply chain. At the same time, AI-enabled smartphones accounted for more than 53% of China’s shipments in Q1 2026, showing how quickly the market is shifting toward embedded AI functions.
The contrast with the West is notable: in China, AI is being integrated into device architecture and ecosystem services, while in Western markets it remains more concentrated in software layers and premium feature sets. That difference also reflects distinct competitive models, with Chinese vendors emphasizing on-device autonomy, local integration, and platform depth.
For global technology markets, the strategic question is no longer whether AI belongs in smartphones, but how deeply it will be embedded into the user experience. The next phase will likely be shaped by hardware economics, memory costs, and the pace of consumer adoption across regions.

(by Doğan Erbek and STF Team) https://www.sustainabletradeandfinance.com/about-us-dogan-erbek/

24/08/2026

OPEC, THE UAE, AND THE REPRICING OF SUPPLY
The United Arab Emirates have re-entered the market as a more aggressive crude producer, with June output reported at about 3.8 million barrels per day after leaving OPEC in May 2026. That compares with a smaller production level under earlier quota constraints, highlighting how quickly supply can respond once policy limits are removed. Market estimates also suggest ADNOC could move beyond 4.5 million barrels per day over the next 12 to 18 months if export conditions remain supportive. The move matters because the UAE has invested heavily in expanding capacity, while the broader OPEC+ framework has continued to adjust collective output in response to market conditions.
In practical terms, this adds another layer to global oil supply management, particularly at a time when geopolitical risks and logistics constraints remain relevant. For financial markets, the key issue is not only higher barrels, but also the changing structure of production discipline in the Gulf. That shift may influence price formation, freight dynamics, and medium-term supply expectations across energy-linked assets.

(by Doğan Erbek and STF Team) https://www.sustainabletradeandfinance.com/about-us-dogan-erbek/

21/08/2026

THE GEOGRAPHY OF OPPORTUNITY: KEY TAKEAWAYS FROM THE OECD EMPLOYMENT OUTLOOK 2026
The OECD published its annual Employment Outlook on 7 July 2026, and this year's edition warrants close attention from anyone advising businesses on workforce strategy, cross-border structuring, or risk management. Subtitled Geographic Disparities in Jobs and Incomes, the report moves beyond headline unemployment figures to examine how location — not merely skills or qualifications — shapes employment outcomes and income mobility across the developed world. In my view, the findings carry direct implications for how we counsel clients in Switzerland and internationally.

Labour markets remain resilient — but the momentum is shifting
The headline picture is broadly positive. OECD-wide employment reached 670 million in May 2026, an increase of roughly 26 per cent since 2001, and is projected to grow by 0.3 per cent this year and 0.6 per cent in 2027. The average OECD unemployment rate stood at 4.9 per cent in May 2026, having remained at or below 5.0 per cent for more than four years. Yet this resilience masks emerging fragility. Employment growth and labour force participation have both shown signs of slowing, and around two-thirds of OECD countries recorded slight increases in their unemployment rates over the past year.

The wage picture, however, deserves particular attention. Real wages have been growing, but at a decelerating pace — annual real wage growth was 2.2 per cent in Q1 2026, down from 2.7 per cent a year earlier. In approximately one-third of OECD countries, real wages remain below their levels of five years ago. The report warns that renewed inflationary pressures linked to higher energy costs are expected to slow real wage growth further. These trends have clear implications for compensation benchmarking, workforce cost projections, and M&A valuations alike.

Regional disparities: larger within countries than between them
The report's most striking analytical contribution is its documentation of geographic inequality. Disparities in employment rates between regions within individual OECD countries now exceed the differences observed between countries themselves, surpassing 20 percentage points in more than half of OECD economies. Regional access to job opportunities plays a decisive role in determining both income levels and income mobility.

In Switzerland — a country with significant cantonal variation in economic structure — this finding resonates strongly. The OECD emphasises that trade shocks hit people, places, and firms differently depending on local industry composition. Workers who lose manufacturing jobs rarely transition into newly created service roles; those positions tend to be filled by younger entrants to the labour market. In my view, this has direct relevance for restructuring scenarios and for the design of social plans in the context of M&A transactions.

Non-compete clauses: a brake on wages and mobility
A particularly noteworthy chapter examines the prevalence and effects of non-compete clauses. The report finds that approximately 30 per cent of employees across 15 surveyed countries are bound by such agreements. These clauses limit workers' outside options, weaken their bargaining power, and reduce wage growth. The OECD further observes that stronger rules alone may not stop the misuse of such clauses, as overly broad or unclear terms remain common. It calls on governments to improve transparency, simplify regulations, and step up enforcement.
This is directly pertinent in a Swiss context. Non-compete provisions under Swiss law (Art. 340 et seq. CO) are already subject to relatively strict enforceability requirements, but broader restrictions remain common in international practice. In my experience, the regulatory trend is moving toward tighter scrutiny of post-employment restraints — a development worth watching closely in relation to transaction documentation, earn-out structures, and key-person retention arrangements.

Skills, pay, and the changing returns to qualifications
The Outlook also investigates how the relationship between skills and pay is evolving. The OECD examines changes in how skills translate into job prospects and remuneration, a theme with obvious significance for workforce transformation, talent strategy, and succession planning. In an environment of rapid technological change, the premium attached to certain skill sets is shifting — and employers who fail to adapt their talent strategies risk losing competitive advantage.

Concluding reflections
I see the OECD Employment Outlook 2026 as a timely reminder that labour markets are not monolithic. The aggregate numbers — record employment, low unemployment — conceal widening geographic fractures, persistent real wage stagnation, and regulatory shifts around worker mobility. The practical implications are clear: location-specific analysis matters more than ever in workforce due diligence; compensation assumptions must account for decelerating real wage growth and energy-driven inflation; and contractual restrictions on employee mobility face increasing regulatory headwinds. These are themes that will shape the employment landscape for some time to come.

(by Doğan Erbek and STF Team) https://www.sustainabletradeandfinance.com/about-us-dogan-erbek/

19/08/2026

GERMANY BETWEEN FISCAL DISCIPLINE AND INVESTMENT NEEDS
Germany’s debt brake remains one of the most consequential fiscal constraints in the euro area, limiting annual net borrowing to 0.35% of GDP under normal conditions. Recent comments from Friedrich Merz underline how difficult any further reform would be, given the need for a two-thirds majority in both the Bundestag and the Bundesrat. That constitutional threshold makes fiscal change a matter of institutional consensus, not only political intent. The debate is taking place as Germany faces softer growth conditions and higher spending pressures linked to defense, infrastructure, and industrial competitiveness.
At the European level, the discussion is relevant because Germany’s fiscal stance influences bond supply, euro area confidence, and the broader policy mix. In that context, the debt brake is not only a budget rule, but also a signal of how Germany balances stability with investment needs.
Any adjustment would therefore have implications well beyond domestic fiscal policy.

(by Doğan Erbek and STF Team) https://www.sustainabletradeandfinance.com/about-us-dogan-erbek/

18/08/2026

THE IMF AND THE CASE FOR POLICY CREDIBILITY
The IMF’s strategy leadership has reaffirmed a familiar but important point: in a shock-prone global economy, price stability remains a core policy anchor. That message comes against a backdrop of slower global growth, with the IMF projecting 3.1% for 2026 and 3.2% for 2027.
At the same time, global inflation is expected to remain above the pre-pandemic norm, with estimates around 3.8% for 2026 and 3.4% for 2027. The IMF has also highlighted that supply disruptions, fiscal credibility, and medium-term policy frameworks are becoming more relevant as uncertainty rises. For financial markets, the emphasis is increasingly on resilience rather than on single-scenario forecasting. That shift is visible across economies where monetary and fiscal coordination must absorb repeated external shocks. In this environment, the quality of policy remains as important as the direction of policy.

(by Doğan Erbek and STF Team) https://www.sustainabletradeandfinance.com/about-us-dogan-erbek/

17/08/2026

INFRASTRUCTURE COSTS IN THE AGE OF AI
The combined expansion of electrification and AI is increasingly shifting cost allocation across utilities, industry, and digital infrastructure. In the United States, recent reporting shows electricity prices rising sharply in several regions, with some industrial users facing increases of 31% in Pennsylvania and 26% in Ohio. At the same time, AI-related data centers are adding new load to power systems, while large technology groups have started to acknowledge the need to absorb part of the incremental network cost.
In Europe, the policy framework is more centralized, with the EU allocating EUR 307.3 million in 2026 for AI, robotics, and quantum technologies. That contrast highlights a structural difference: in the West, the financing model is still being negotiated between public policy, regulated utilities, and private platforms. By contrast, the industrial logic in China appears more vertically integrated, with state coordination and supply-chain alignment reducing the visibility of cost pass-through. The key question is therefore not only how fast electrification and AI are scaling, but also where the associated infrastructure bill is ultimately being absorbed.

(by Doğan Erbek and STF Team) https://www.sustainabletradeandfinance.com/about-us-dogan-erbek/

12/08/2026

BEYOND THE ORG CHART: THE RISE OF ECONOMIC SUBSTANCE ENFORCEMENT
Across the globe, tax administrations are applying economic substance requirements with a level of rigour that has increased significantly over the past decade. The question they are asking is deceptively simple: does this entity actually do what it claims to do? And increasingly, the answer they arrive at is shaped not by legal form or contractual arrangements, but by where people sit, where decisions are made, and where value is genuinely created.

For multinational groups operating across Switzerland and international markets, this shift has real and practical consequences, and we think it's worth taking a closer look at where things stand.

What has changed?
The direction of travel is not new. The OECD's BEPS project laid the intellectual groundwork years ago, and the introduction of Pillar Two's global minimum tax rules has only accelerated the trend. But what we find particularly notable is the consistency and coordination of enforcement.

Tax authorities in Europe, the Middle East, Asia-Pacific, and Latin America are now applying remarkably similar tests when they examine international structures. They want to see that an entity claiming income — whether from intellectual property, financing, or management services — has the qualified personnel, the decision-making authority, and the operational capacity to justify that claim. Paper-based arrangements, where key functions are outsourced or where board meetings are the only local activity, tend to draw challenge after challenge.

Switzerland, with its long-standing emphasis on substance in tax rulings and its alignment with OECD standards, is in many ways well positioned. But Swiss-headquartered groups are not immune. Outbound structures — where Swiss entities route income through subsidiaries in lower-tax jurisdictions — are under particular scrutiny, as are arrangements where Swiss principal companies rely heavily on offshore service entities without demonstrable functional depth.

Where the pressure points lie
We'd highlight a few areas that are attracting heightened attention.

Intellectual property holding structures remain a primary focus. Tax authorities are looking closely at whether the entity that owns or licenses IP has the technical and commercial staff to develop, enhance, maintain, protect, and exploit it — the so-called DEMPE functions. Structures where IP ownership sits in one jurisdiction but all meaningful R&D and commercial exploitation occurs elsewhere are increasingly difficult to defend.

Intra-group financing is another area of sustained scrutiny. Entities that provide intercompany loans or guarantees need to demonstrate genuine decision-making capacity around credit risk assessment, funding strategy, and treasury management. A thinly staffed entity with no independent access to capital markets will likely struggle to justify the margins it earns.

Management and advisory fees are also under the microscope, particularly where regional holding companies charge subsidiaries for strategic oversight or shared services. Authorities are asking pointed questions about what specific services are being provided, by whom, and whether the fees bear any reasonable relationship to the cost or value of those services.

The practical challenge
In our view, the difficulty more often than not is not a lack of substance — it is a lack of documentation and alignment. The business may well have the right people doing the right work in the right places, but if the legal and transfer pricing documentation tells a different story, or if functional profiles have not been updated to reflect how the business actually operates today, the risk of challenge tends to grow.

This is especially common after restructurings, acquisitions, or organic changes in operating models. A structure that was fully substantiated five years ago may no longer reflect current reality. Supply chains shift, key personnel relocate, decision-making migrates — and the documentation often lags behind.

A proactive approach
Rather than waiting for a tax authority to raise questions, groups can take some practical steps to strengthen their position.

A substance audit — reviewing each material entity's functional profile, headcount, decision-making processes, and local activities against the income it reports — is what we'd consider a sensible starting point. This need not be an enormous exercise. A focused review of the five or six entities that account for the bulk of intercompany flows will usually surface the most significant gaps.

From there, the work tends to fall into two categories. First, operational adjustments: ensuring that key personnel are genuinely located where they need to be, that board and management decisions are taken locally, and that entities have the resources to perform the functions attributed to them. Second, documentation: updating transfer pricing reports, intercompany agreements, and functional analyses to reflect how the business actually works — not how it was designed to work several years ago.

We'd also note that substance is not solely a tax issue. Regulatory authorities, particularly in financial services, are applying their own substance expectations, and the reputational risk of being seen to maintain hollow structures is something boards are taking more seriously.

Looking ahead
We don't see the trend towards substance-based enforcement reversing any time soon. If anything, the combination of Pillar Two implementation, enhanced exchange of information between tax authorities, and the growing use of data analytics in tax audits will only make it easier for authorities to identify and challenge structures that lack genuine operational depth.

The message for multinational groups is straightforward: take the time to ensure that your structures reflect your business as it operates today, not as it was designed to operate in the past. We find that the cost of a proactive review is modest compared to the cost of defending an assessment — or, worse, discovering that a structure you relied on no longer holds up under scrutiny.

(by Doğan Erbek and STF Team) https://www.sustainabletradeandfinance.com/about-us-dogan-erbek/

11/08/2026

EURO AREA INFLATION AND THE ECB’S NEXT SIGNALS
The ECB enters the week with euro area inflation at 2.8% in June 2026, still above its 2% target. At the same time, the latest ECB statistics continue to frame price stability as the central policy reference point. Recent market pricing and commentary suggest that investors remain focused on the interaction between inflation, growth, and the policy path, rather than on any single headline.
In parallel, euro area monthly CPI data for June showed a decline of 0.1%, underlining the uneven nature of the disinflation process. Against this backdrop, the euro area economy continues to face modest growth conditions, while financial markets remain sensitive to any shift in the ECB’s communication. The key point is continuity: the ECB’s decisions remain closely tied to incoming data, inflation dynamics, and broader macroeconomic conditions.

(by Doğan Erbek and STF Team) https://www.sustainabletradeandfinance.com/about-us-dogan-erbek/

10/08/2026

THE FED’S POLICY MIX AND USD IMPLICATIONS
The Federal Reserve’s balance sheet remains a relevant policy variable as markets assess the transmission of monetary tightening beyond the policy rate itself. Deutsche Bank’s view is that a balance sheet reduction, rather than higher short-term rates, would be distinctly bearish for the U.S. dollar. That assessment comes at a moment when the Fed funds target range is 3.50% to 3.75% and the dollar index is trading around 100.77.
Recent data also show the Fed’s total assets near $6.74 trillion, underscoring that quantitative tightening continues to matter for liquidity conditions. In this context, the relative impact of policy rates, balance-sheet adjustments, and yield-curve dynamics remains central to currency pricing. For global markets, the key issue is not only the direction of policy, but also the composition of tightening. That distinction can shape expectations across rates, FX, and broader financial conditions.

(by Doğan Erbek and STF Team) https://www.sustainabletradeandfinance.com/about-us-dogan-erbek/

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