Global economic outlook: February 2025

Shifts in US policy, and their potential economic implications, remain in focus. Early February’s flurry of tariff-related announcements rattled global financial markets initially. Pausing the proposed tariffs on US imports from Canada and Mexico subsequently soothed those initial jitters. Still, the surge in policy-related uncertainty has the capacity to cause significant economic damage. We have factored rising US tariffs and related counter-measures into our forecasts since December 2024, with trade weakness the primary cause of the projected slowdown in quarter-over-quarter global real GDP growth rates this year. Weaker investment is a key downside risk.

Our global growth forecasts for 2025–26 have been lifted slightly in the February update, although this masks some contrasting national revisions. Although we still expect a slowdown in the US, our annual real GDP growth forecast for 2025 has been revised upward to reflect still solid momentum around the turn of the year, particularly in consumer spending. Some headwinds to US growth are intensifying, including higher-than-expected Treasury yields and private borrowing costs, and the related strength of the US dollar. Japan’s higher 2025 growth forecast largely reflects upward revisions to 2024 data.

We have revised down our real GDP growth forecasts for 2025 in Brazil, the UK and Russia. The downward revisions to Brazil’s forecasts, for this year and next, reflect much tighter monetary policy than previously forecast. Recent business surveys, including S&P Global’s Purchasing Managers Indexes™ (PMIs®), are already showing signs of pronounced weakness in services. The reduction to 2025’s UK growth forecast reflects a continuation of the recent run of weak GDP prints and the expected effects of tighter fiscal policy. Tight monetary policy and weaker export prospects contribute to the lower growth forecast for Russia.

January’s global PMI® figures have already signaled a loss of growth momentum. The global composite output index fell to its lowest level for a year and is indicative of below-potential global real GDP growth. Business activity in services fell to its lowest level since late 2023. While the indications for global manufacturing and trade have perked up a little over recent months, they remain comparatively weak. February’s “flash” PMI® figures, released from the 20th onward, will be the first gauge of the fall-out from the surge in policy-related uncertainty.

Monetary policy divergence is set to continue in the near term. We now forecast that the US Federal Reserve will lower policy rates by only 25 basis points this year, in May. Even this call, which is driven by the monetary policy stance remaining somewhat restrictive, looks marginal. In contrast, given relatively weak eurozone economic conditions, the European Central Bank is expected to be in the vanguard of further easing in 2025. Recent modest rate cuts in various emerging economies, including India and South Africa, signal a more cautious approach, with the strength of the US dollar a constraint. Brazil’s consecutive 100 basis point rate hikes tell their own story, meanwhile, with more of the same expected in the period ahead.

Recent signals for inflation have been less favorable. Consumer price inflation rates for services generally remain rather sticky. The rate which we calculate and track for the G5 group of economies has maintained its very gradual downward trend, edging down from 4.2% to 4.1% in December 2024. Even in economies with comparatively weak demand, such as the eurozone and UK, services inflation rates remain around or above 4%. Services price data from our global PMIs® picked up markedly in January, with input and output price indexes reaching their highest levels in almost a year. With core goods inflation now picking up, albeit from very low levels, stickiness in services and overall core consumer price inflation rates could constrain the room for policy rate cuts, compounding growth headwinds.

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.