Coffee Table Economics (CTE) with Anchor, by Casey Sprake, is distributed periodically. CTE is a compilation of Casey’s research, analysis, and perspectives on key South African (SA) and global economic data such as inflation, spending trends, and international market dynamics, including socio-political events and the multiple factors shaping the world economy.
Executive summary
In this week’s edition, we highlight the following:
- From poverty to prosperity: The global income map is being redrawn. Over the past 25 years, the global income landscape has transformed, with the share of low-income countries plummeting from 30.7% to just 11.9%. Driven by rapid growth in countries like China, India, and Chile—and boosted by industrial reform, resource booms, and expanding global trade—many nations have climbed the income ladder, reshaping global economic power. Yet regional disparities remain, and the challenge now is ensuring that this momentum leads to inclusive, sustainable prosperity for all.
- Rising global defence budgets: Power, priorities, and economic trade-offs. Global defence spending is surging, led by the US, which now allocates nearly US$1trn to it—more than the next 12 countries combined—while rivals like China and Russia rapidly expand their military capabilities in pursuit of regional dominance. This arms race is reshaping global power dynamics, but it is also raising economic concerns, from bloated defence contracts and reduced efficiency to the crowding out of critical social investments. As geopolitical tensions mount, the world faces a growing dilemma: How to balance national security with long-term economic resilience.
- Unemployment rises again, testing SA’s recovery and reform efforts. SA’s unemployment rate climbed to 32.9% in 1Q25, up from 31.9% in 4Q24. This latest increase underscores the country’s ongoing struggle with persistently high joblessness, which continues to impede broader economic recovery efforts.
From poverty to prosperity: The global income map is being redrawn
Over the past 25 years, the global economic landscape has undergone a significant transformation. The share of low-income countries has shrunk dramatically, falling from 30.7% in 2000 to just 11.9% today. This evolution signals not only a reduction in extreme poverty but also a broader trend of income convergence and structural transformation across many parts of the world. Behind this shift are dynamic changes in global trade, industrial policy, resource management, and demographic trends that have reshaped national economies and lifted millions out of poverty.
One of the most striking success stories in this regard is China, which transitioned out of low-income status as early as 1999 and achieved upper-middle income status by 2010. An export-led growth model, heavy investment in infrastructure, and integration into global supply chains drove this. Similarly, India, once classified as a low-income country, is now firmly in the middle-income bracket. A burgeoning services sector, demographic dividends, and increased foreign investment have underpinned its rapid economic ascent.
The World Bank classifies countries by gross national income (GNI) per capita, which encompasses income earned by residents and businesses both domestically and abroad. Based on this metric, countries are sorted into four categories: low income (GNI per capita of US$1,145 or less), lower-middle income (US$1,146–US$4,515), upper-middle income (US$4,516–US$14,005), and high income (above US$14,005). In 2025, 39.4% of the world’s countries are considered high income, up from 25.4% in 2000. This shift has been especially notable in Europe, where several former Eastern Bloc countries (such as Hungary, Poland, Czechia [the Czech Republic], and Slovakia) have transitioned to high-income status. Their success can largely be attributed to market liberalisation, foreign direct investment, and integration into the EU, which accelerated income growth and institutional development.
In Latin America, Chile and Uruguay have climbed into the high-income bracket, buoyed by commodity exports. Chile, for example, is the world’s leading copper producer and a major player in lithium, both of which saw booming demand in the 2000s. These resource-rich economies leveraged favourable global prices to boost GDP per capita and strengthen public finances. Meanwhile, Asia continues to exhibit remarkable dynamism. South Korea’s ascent is particularly noteworthy- it is one of the few economies to avoid the so-called middle-income trap, thanks to its innovation-driven industrial policy and deep integration with global markets, primarily through exports to China and specialisation in electronics, automotive, and shipbuilding industries.
Despite these gains, regional disparities persist. While 42.9% of countries in Latin America and the Caribbean now fall into the high-income categories (especially island nations), regions like Sub-Saharan Africa (SSA) and South Asia remain predominantly low- or lower-middle-income. However, growth prospects in these regions are promising. In 2024, nine of the top 20 fastest-growing economies globally were in SSA, including Niger, Senegal, and Libya. These countries are benefitting from infrastructure investment, increased resource exports, and improvements in governance and macroeconomic stability. The Middle East presents a mixed picture. While several countries (such as Qatar, Saudi Arabia, and the UAE) have among the highest GDPs per capita globally, owing to vast oil wealth, there remains a need for greater economic diversification. Notably, Saudi Arabia has emerged as the first US$1trn economy in the region, driven by both hydrocarbon revenues and ambitious reforms under its Vision 2030 initiative.
The bottom line
The economic implications of these shifts are far-reaching. As more countries move up the income ladder, global consumption patterns are changing, new markets are emerging, and the distribution of economic power is becoming more multipolar. However, with progress comes new challenges, including rising inequality within countries, the need for climate-resilient development, and the difficulty of sustaining growth once countries reach middle-income status. While global income classifications have shifted significantly over the past quarter-century, the underlying drivers- ranging from trade integration and resource exploitation to demographic shifts and institutional reform- underscore the importance of long-term policy consistency and global cooperation. The task ahead is to ensure that this upward mobility is inclusive, sustainable, and resilient in the face of emerging global risks.
Rising global defence budgets: Power, priorities, and economic trade-offs
According to the latest data from the International Institute for Strategic Studies, in 2024, the US has allocated c. US$1trn to defence—3.4% of its GDP, reflecting not only its global military reach but also the growing strategic competition it faces. Despite ongoing debates about fiscal sustainability and domestic needs, US defence spending remains unmatched; in fact, America’s military budget equals the combined total of the subsequent 12 largest defence budgets worldwide. This level of spending signals the continuation of America’s dominant military posture, but it also raises critical questions about efficiency, allocation, and long-term economic trade-offs.
In comparison, the North Atlantic Treaty Organization (NATO) allies in Europe and Canada spent an average of 2% of GDP on defence in 2024, a target that many only recently began to meet after years of declining defence outlays post-Cold War. These renewed commitments are driven by shifting geopolitical dynamics, particularly the resurgence of Russia and the growing military assertiveness of China. Since 2000, Russia’s defence budget has surged by 227%, and China’s has grown by a staggering 566%, reflecting both countries’ ambitions to challenge the current global order and secure regional dominance.
China’s defence budget reached US$235bn in 2024, but on a purchasing power parity (PPP) basis—adjusting for lower domestic costs—this figure rises to an estimated US$477bn. China’s rapid military modernisation has prioritised naval power, advanced missile systems, cyber capabilities, and nuclear expansion. The country now possesses 600 operational nuclear warheads, projected to reach 1,000 by 2030, reinforcing concerns over its intentions toward Taiwan and its broader strategic goals in the Indo-Pacific.
Russia, with a much smaller economy, spent US$146bn on defence in 2024—6% of its GDP, its highest share since the Cold War. In real purchasing power terms, this figure rises to US$461bn, placing Russia close to China in terms of military capability, particularly given its nuclear arsenal of around 5,000 warheads. Despite its economic limitations, Russia continues to prioritise military power as a cornerstone of its geopolitical strategy, particularly amid its prolonged war on Ukraine and deteriorating relations with the West.
The implications of this global arms buildup are wide-ranging. Rising defence budgets often divert resources away from other critical sectors such as education, healthcare, and infrastructure. In the US, consolidation within the defence industry has exacerbated concerns about overspending and inefficiency. Today, just five major contractors receive 86% of Pentagon spending, a sharp shift from the end of the Cold War, when 51 contractors shared 6% of the budget. This concentration has been linked to lower productivity gains, reduced competition, and rising procurement costs, raising questions about the cost-effectiveness of US defence investments.
Moreover, domestic political dynamics add another layer of complexity. Under the Trump administration, the Pentagon saw major personnel shakeups, including the dismissal of senior US Military, Navy, Coast Guard, and Air Force leaders, along with top legal officials. Such disruptions threaten institutional stability and may undermine long-term strategic planning. The Pentagon is also expected to shed up to 8% of its personnel, potentially affecting readiness and morale.
The bottom line
From an economic standpoint, high defence spending can have mixed effects. While it supports advanced manufacturing, research, and technological innovation, particularly in aerospace and cyber defence, it can also crowd out private investment and contribute to fiscal pressures. For emerging economies like China and Russia, defence outlays may fuel industrial development, but they also risk exacerbating income inequality and limiting social spending. As geopolitical rivalries intensify and military postures harden, the global defence economy is entering a new phase of expansion. This trend reflects not only strategic competition but also deeper shifts in global power structures. However, the economic opportunity costs are significant, and nations must balance national security imperatives with the need for sustainable, inclusive economic development.
Unemployment rises again, testing SA’s recovery and reform efforts
SA’s unemployment rate climbed to 32.9% in 1Q25, up from 31.9% in 4Q24. This latest increase underscores the country’s ongoing struggle with persistently high joblessness, which continues to impede broader economic recovery efforts. While several reform initiatives signal a potentially positive shift in the long term, these improvements have yet to translate into meaningful employment gains for the broader population. The unemployment crisis is rooted in deep structural challenges, including a mismatch between available skills and labour market demands, rigid labour market policies, and the lingering socio-economic scars of the COVID-19 pandemic. Youth unemployment remains especially severe, reflecting both a lack of opportunities and systemic barriers to entry into the workforce. As the economy attempts to grow, the lack of inclusive job creation threatens to widen inequality, undermine social cohesion, and dilute recent economic progress.
Job losses during the quarter were most pronounced in the formal non-agricultural sector, which shed approximately 245,000 jobs. Private households followed, with a decline of 68,000 jobs. In contrast, there were modest employment gains in the informal non-agricultural (+17,000) and agricultural (+6,000) sectors. Within the formal sector, the domestic trade industry recorded the largest quarterly loss of 133,000 jobs, likely reflecting the end of temporary festive season employment. Additional job losses were seen across the community services, construction, mining, and manufacturing sectors. On a more positive note, the finance, transport, and communications sectors reported job growth during the same period.
The combination of limited skills development, inadequate access to quality education and training, and insufficient new job creation has left a significant portion of the population unable to secure meaningful employment. The situation is particularly dire for young South Africans, with the unemployment rate among those aged 15 to 24 rising further to a staggering 62.8%. Meanwhile, the expanded unemployment rate, which includes discouraged job seekers who have stopped looking for work, rose to 43.1%, highlighting the broader scope of the employment crisis. These data point to entrenched, long-term structural problems in the local economy. Once individuals fall out of the labour force, especially discouraged workers, it becomes increasingly difficult to reintegrate them into productive employment. These trends reflect not just a lack of job availability but also the deteriorating quality of jobs on offer. Many who are employed remain stuck in insecure, low-paying, or informal work, which perpetuates underemployment and poverty.
It is important to note the growing discrepancies between different employment data sources. The Quarterly Labour Force Survey (QLFS), a household-based survey covering the formal, informal, and agricultural sectors, has increasingly diverged from the Quarterly Employment Statistics (QES) survey, which is enterprise-based and focused solely on the formal sector. This divergence complicates efforts to obtain a comprehensive and consistent picture of SA’s labour market dynamics. Regardless of which dataset is referenced, the headline unemployment figures fail to capture the full scale and complexity of the crisis. Official measurements often overlook discouraged workers, underemployed individuals, and those in informal or precarious jobs. Additionally, these figures do not reflect job quality or security factors that are critical for assessing true economic well-being.
The bottom line
Notably, sustainable job creation in SA has historically only occurred when GDP growth approaches 3% p.a. At present, economic growth remains too sluggish to generate the scale of employment needed to meaningfully reduce unemployment. Addressing this multifaceted challenge will require long-term, coordinated interventions that span policy reform, education and skills development, private sector investment, and broader economic transformation. Only through such an inclusive approach can SA hope to build a more equitable and resilient labour market.
