RESEARCH — Oct. 16, 2025
Global Economic Outlook: October 2025
By Ken Wattret
Shaky foundations
Global economic conditions have been resilient to trade-related uncertainties, but worries about a potential AI bubble add to an already long list of concerns.
The more elevated the valuations of technology stocks, the higher the risk that implied earnings ultimately undershoot expectations, while the increasing importance to equity indexes of a small number of tech firms raises the likelihood of a correction sufficiently large enough to have material economic consequences.
Equity-related wealth effects are comparatively important for US households, and as US consumer spending accounts for not far short of 20% of global GDP, a major deterioration in the outlook would be a game- changer for economic prospects worldwide.
Recent AI-related angst also stems from the unusually high share of US growth attributable to investment in information processing equipment and software during the first half of 2025, with its share of US GDP having risen to its highest level since 2000 amid the dot-com bubble.
What are our GDP growth forecasts for 2025 and beyond?
Our big picture assessment of growth prospects is broadly unchanged in October’s update, although considerable uncertainty continues to surround the base case.
We continue to forecast a near-term moderation in growth momentum in most major economies and regions, primarily due to a hangover from prior tariff front-loading. This is not expected to turn into a slump in 2026 thanks to a few tailwinds for growth. These include further falls in crude oil prices, feeding into lower inflation rates and more accommodative monetary policies.
Looser fiscal stances in the US and Germany are also growth-supportive, although the potential fragility of sovereign debt markets in many of the world’s largest economies remains a key source of risk. The recent resurfacing of US-mainland China trade tensions, and the initial response of equity markets, is a reminder of another key risk.
Annual real GDP growth projections for 2026 for the US, the eurozone, India and Russia have been lowered in October’s forecast round. As the revisions were minor outside of Russia, our global growth forecast for 2026 was trimmed only slightly from 2.7% to 2.6%.
At the same time, our global growth estimate for 2025 was lifted a notch, from 2.6% to 2.7%, as upward revisions in the US and India offset downward adjustments in Brazil and Russia. The changes to the 2025 estimates were again modest and largely reflect the evolution of recent data.
What is likely to happen with monetary policy in 2025 and 2026?
Lower inflation forecasts for 2026 favor a continuation of central bank easing, but the stickiness of core inflation rates is a potential constraint.
We now forecast 25-basis-point rate cuts at the Federal Reserve meetings in October and December. At the time of writing, futures markets are discounting a near-100% probability that both cuts will be delivered by year-end, followed by a fall to what we estimate to be the neutral Fed funds target range of 3.00%-3.25% by June 2026.
Given lingering concerns about tariff-induced inflationary pressures in the US, we see a higher likelihood than markets currently anticipate of a pause in Fed easing in early 2026 and a later return to a neutral level of rates.
Lower oil prices are expected to lean down on headline consumer price inflation rates, but core rates make for uncomfortable reading in many advanced economies—the eurozone is a notable exception. In the US and Japan, they are over 3%, while the rate in the UK has been closer to 4% in recent months.
Lower central bank policy rates will not be a game-changer for growth. Even if we assume that improving inflation prospects allow central banks to cut rates rather swiftly, we ought to be wary of over-optimism about the potential implications for growth for various reasons.
First, uncertainty over trade and other issues is likely to persist. Second, yield curves are likely to continue to steepen given elevated deficits and debt, tempering the overall impact on financing costs. Third, the most interest rate-sensitive sectors such as manufacturing and construction account for a smaller share of economic activity in advanced economies than in the past.
What does our Purchasing Managers Index data tell us?
S&P Global’s global Purchasing Managers Indexes (PMIs®) suffered a setback in September. Following four straight months of improvements, the global composite output index lost some ground. A half-point fall in the still-outperforming services index contributed to the decline, while the tentatively positive signs for global manufacturing in August also faded.
On the positive side, output expectations for the year ahead improved. The PMIs also continued to show comparatively high goods price pressures in the US, although the manufacturing input and, particularly, the output price indexes for the US have come down from their mid-year peaks.
Where do we see signs of fiscal fragility?
The focus on French and UK sovereign yield spreads is likely to persist. While the risk of an early 2010s-style crisis in Europe is still relatively low, a vicious cycle is playing out. A combination of persistent uncertainty over the fiscal and political outlook, coupled with higher borrowing costs and tax increases, is damaging growth prospects in Europe’s second- and third-largest economies. This, in turn, makes effective fiscal consolidation even more difficult to achieve.
This article was published by S&P Global Market Intelligence and not by S&P Global Ratings, which is a separately managed division of S&P Global.