Global economic outlook: January 2025

Expected post-election shifts in US economic policy remain the focus of financial markets. Consistent with recent favorable US growth signals and heightened concern over inflation prospects, futures markets now discount just one 25-basis-point rate cut by the US Federal Reserve during 2025. The upward pressure on US yields has continued accordingly, with the 10-year Treasury yield of 4.8% at the time of writing about 120 basis points above the September 2024 low (at the time of the Fed’s initial, bold rate cut). Spillover effects on other sovereign yields have also been increasingly apparent recently, and we have revised up our forecasts for many key economies, notably including the UK.

The key aspects of our economic forecasts for 2025–26 remain broadly unchanged in January’s update. S&P Global Market Intelligence’s outlook was revised materially in our December forecast round owing primarily to expected US tariff increases and their implications. We lowered our real GDP growth forecasts for 2025 and 2026 for most major countries and regions, consistent with a more challenging environment for trade, increased uncertainty, and less accommodative financial conditions than previously projected.

The global real GDP growth forecasts for 2025 and 2026 remain at 2.5% and 2.6%, respectively, in our January update. This implies a modest slowdown versus the estimated global growth rate of 2.7% for 2024 but a more substantial weakening compared with average annual global growth of more than 3% over the five years to 2019 (i.e., before the COVID-19 shock). S&P Global’s Purchasing Managers Index™ (PMI®) data have continued to show divergence between weakness in manufacturing and resilience in services in recent months, with the global composite output index indicative of steady but subdued overall growth.

Slowdowns in the US and mainland China, which account for over 40% of global GDP, remain pivotal to our global outlook. Although the US real GDP growth forecast for 2025 edged up from 1.9% to 2.0% in January’s update, reflecting recent strength, this would still be below last year’s estimated 2.8% rate. Less accommodative US financial conditions are expected to outweigh the effects of looser fiscal policy. For mainland China, we retain the 2025 growth forecast of 4.2%, well below the official target of around 5%. A less favorable trade outlook, along with spillovers to fragile private- sector confidence, will likely be only partly offset by additional policy stimulus, although we will continue to monitor policy developments closely.

We have lowered our UK real GDP growth forecast for 2025 from 1.0% to 0.7%. The 2026 forecast has also been reduced. The latest disappointing UK survey data followed back-to-back contractions in real GDP in September and October. With long-term gilt yields having reached their highest levels since the 1990s, jeopardizing the government’s fiscal targets, the risk of another round of tightening measures in the spring has risen. Lower-than-expected December inflation data provided some short-term respite, reinforcing the case for a February policy rate cut. Given the challenging economic and fiscal backdrop, including higher labor taxes for UK firms from April, we have lowered our forecasts for the pound.

US dollar strength is expected to continue in the short term, ahead of a projected gradual depreciation. Our measure of the real effective US dollar index recently reached its strongest level since the mid-1980s, and relative growth and interest rate prospects suggest that it will remain elevated early in 2025. Still, with a lot of positive news for the US dollar already factored in, we continue to forecast a gradual depreciation starting in spring.

Global consumer price inflation is still forecast to moderate in 2025–26, albeit more gradually. Survey data, including our PMI® data, continue to point to subdued underlying global goods inflation, although the higher tariffs incorporated in our baseline forecast since December imply some upward pressure from mid-2025. The gradual downward trend in services inflation will likely persist. We also continue to forecast a moderation in crude oil prices: average prices for Dated Brent crude in 2025 and 2026 of $72/b and $69/b, respectively, are unchanged from December. The 2025 forecast for S&P Global’s Material Price Index, excluding energy, has been lowered slightly owing to expected demand weakness.