Global Economics Intelligence executive

summary, February 2025

March 21, 2025 | Article

By Sven Smit, with Jeffrey Condon and Krzysztof Kwiatkowski

Geopolitical and trade uncertainty stayed elevated in February, with

inflation back in focus as consumers and producers expect higher
prices; industry sentiment is still positive despite slow growth.

Trade policy is notably uncertain, with both the monthly Global

Economic Policy Uncertainty Index and the Trade Policy Uncertainty
Index spiking (Exhibit 1). US consumers are of two minds: sentiment
differs according to whether consumers are considering their own
local economy or looking further afield, a phenomenon that can
perhaps be characterized as the “I am OK, but you are not OK”
economy.

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This economic environment finds central bank policies divided into
two camps, with many playing a waiting game to see how inflation
develops. India and the UK did cut interest rates this month. On
February 7, the Reserve Bank of India (RBI) reduced rates for the first
time in nearly five years to counter slower growth, cutting the repo
rate to 6.25% (from 6.50%). It also announced a raft of measures to
inject durable liquidity into the banking system. Two days earlier, a
majority of the Bank of England’s Monetary Policy Committee voted to
reduce the bank rate by 0.25 percentage points, to 4.5%.

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The recovery among developed markets continues, while emerging

markets face some challenges. The Conference Board’s February
projections anticipate real GDP growth in the eurozone to be 0.8% in
2024, 0.9% in 2025, and 1.3% in 2026—revised down by –0.1
percentage points in 2025 and –0.1 percentage points in 2026 from a
month ago. In the UK, quarter-on-quarter headline GDP growth is
expected to slow to about 0.4% in the first quarter of 2025, pick up to
almost 1.5% by the fourth quarter of 2025, and then decline to below
1.5% in 2026. India’s fiscal year 2026 GDP growth is anticipated to be
in the range of 6.3 to 6.8% in the context of current global
uncertainties.

Across economies, consumer confidence has dipped as inflation

expectations have risen. The US consumer confidence index
(Conference Board) declined in January to 104.1, from a revised 109.5
in December. In Brazil, consumer confidence has been lingering below
the neutral 100 mark and fell to 86.2 in January (91.3 in December) to
reach its lowest level since February 2023, with elevated borrowing
costs a likely factor in denting confidence.

Even so, consumers kept spending in December and January,

attributable in part to the holiday season. US retail and food services
sales for January (adjusted for seasonal variation and holiday and
trading-day differences) were $723.9 billion—representing a –0.9%
drop from December’s revised $730.3 billion. Consumption during the
Chinese New Year holiday was robust, hinting at a change of mood
among Chinese consumers, with sales revenues in consumer-related
industries climbing by 10.8% year on year. Notably, China’s New Year
holiday box office receipts reached another record high as moviegoers
spent $1.3 billion over the eight-day holiday period.

Inflation expectations continue to climb, reaching their highest level

in almost two years. US inflation expectations were unchanged at
3.0% at both the one- and three-year-ahead horizons in January, but
median five-year-ahead inflation expectations rose 0.3 percentage
points to 3.0%, the January Survey of Consumer Expectations reveals.

Indeed, inflationary pressures returned in January with most price

metrics on the rise. Commodity prices grew in February, except for
energy, which remained muted. However, higher tariffs on steel and
aluminum, along with increased uncertainty, resulted in higher prices
for industrial metals. In contrast, the FAO Food Price Index declined,
primarily due to improved global supply conditions for sugar and
vegetable oils, as well as lower meat prices driven by increased
production and lower demand.

The price of gold—a traditional hedge in times of uncertainty—

continued to surge on account of renewed inflation fears and the
general geopolitical and economic environment, but Bitcoin declined
in February on the back of security concerns and regulatory
uncertainty, following initial optimism for the new US administration’s
pro-cryptocurrency policy.

Inflationary trends appear to be diverging across surveyed economies

(Exhibit 2). The US consumer price index (CPI) rose 3.0% for the 12
months ending January 2025, up from the 2.9% rise over the 12
months ending in December. Core inflation climbed slightly to 3.3%
(annualized).

In the eurozone, January’s headline inflation is expected to be 2.5%,

mainly owing to base effects in energy prices (2.9% month on month).
Core inflation is expected to be 2.7% and services inflation 3.9%.
Meanwhile, the UK is expected to see a sharp near-term rise in
inflation, according to the Bank of England’s February Monetary Policy
Report. Headline CPI inflation is expected to rise to 3.7% in the third
quarter of 2025. Inflation is expected to fall back to the 2% target
after that.
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happy to work with you. Please email us
at: [email protected]

In China, consumer prices saw a moderate increase of 0.5% in

January, up from 0.1% in December 2024. Producer prices deflated by
–2.3% in January, remaining unchanged from December 2024. India is
likely to see consumer inflation fall to a five-month low of 4.6% in
January 2025, compared with the 5.2% recorded in December last
year. Inflation also fell in Brazil, down for a second consecutive month
and reaching its lowest level since September 2024, at 4.56% in
January (4.83% in December). Similarly, Mexico saw the annual
inflation rate drop in January, to 3.6% (from 4.2% in December), its
lowest level since January 2021.

Globally, the manufacturing sector has stabilized somewhat after

seven months of contraction, with sectors improving across the board,
driven by production and new domestic orders. That said, companies
continue to report weak external demand and reduced head count.
Looking more closely at the developed economies, we see that in the
US the industrial production index increased slightly to 103.5 in
January (102.9 in December), while the manufacturing purchasing
managers’ index (PMI) was revised up to 51.2, beating a preliminary
estimate of 50.1. The eurozone’s composite PMI edged into the
expansion zone at 50.2 in January (49.6 in December), but the
manufacturing PMI remained below the neutral 50.0 level, although it
did rise to 46.6. In the UK, manufacturing companies face weak
demand, low confidence, and rising costs. The seasonally adjusted
S&P Global UK Manufacturing PMI posted 48.3 in January, up from
December’s 11-month low of 47.0.

Among the emerging economies in January, China’s official

manufacturing PMI fell into the contraction zone at 49.1 (down from
50.1 in December 2024), highlighting a contraction in both supply and
demand within industrial activities. In contrast, India’s manufacturing
PMI indicated a strong upturn in the sector, driven by rising exports as
well as domestic demand.

Services, meanwhile, are starting to show signs of softening. Across

developed economies, services sectors nevertheless continued to
record expansion, albeit at a reduced pace. In the US, the services
PMI dropped to 52.9 (56.8 in December), while the eurozone services
PMI was slightly down at 51.3 in January (December: 51.6). The UK’s
services PMI registered 50.8 in January, down fractionally from
December’s 51.1, its joint lowest for 15 months. Among emerging
economies, China’s official services PMI declined but remains in the
expansion zone, recording 50.3 in January (52.0 in December 2024).

December unemployment rates remained stable across most

surveyed economies, although India saw a 0.3-percentage-point rise.
More recent data from the US saw unemployment edge down a little
to 4.0% in January (3.5% in January 2020). China’s surveyed urban
employment rate was 5.2% in January (5.1% in December 2024),
while the youth unemployment rate rose slightly to 16.1% (15.7% in
December).

Despite increased economic volatility, asset volatility was unchanged

in February, with government bond yields remaining stable. Most
markets rebounded, with a February rally on Russia’s stock market
sparked by hopes that the war in Ukraine may reach a conclusion. In
contrast, India’s equity market fell by 0.3% in January 2025, following
a 2.4% drop in December 2024. This decline was driven by
uncertainty around US trade policy, weak global signals with declining
US stock futures, and concerns over AI disrupting services business in
India.

World trade volume increased by 1.1% in December 2024, driven by

growth across imports and exports in advanced economies. The
Container Throughput Index declined to 131.2 points (133.6 in
November). Chinese ports experienced a reduction in port trade,
reflected in its container throughput index, while European
throughput rose sharply. Total port trade remained below the year-ago
level but continued to recover in December. The supply chain index
indicates a more stable supply chain environment, but risks stemming
from geopolitical uncertainty and potential inflationary pressures
persist.

Looking more closely at individual economies, we see that

December’s exports reached $266.5 billion in the US, $7.1 billion
lower than November’s total. Imports were $364.9 billion, $12.4
billion more than in November. The monthly deficit increased by
24.7% to $98.4 billion. China saw an improvement in overall trade
growth across the whole of 2024, with exports increasing by 5.9% (–
4.7% in 2023) and imports rising by 1.1% (–5.5% in 2023). India’s
trade deficit in goods widened slightly to $22.9 billion from $21.9
billion in December, potentially attributable to a rising import bill
driven by a rapidly depreciating currency—the rupee lost 1.4% in
value compared with the US dollar from the start of the year up to
mid-February.

Notable from the full report

In the advanced economies, President Trump signs memo for “fair

and reciprocal” tariffs on all US trading partners; Germany looks to
form a new government; inflation is up in the UK.

United States. President Donald Trump signed a memorandum on

February 13, calling for “fair and reciprocal” tariffs on all US trading
partners, directing his advisers to begin calculating new tariff levels.
Eurozone. On February 23, the Christian Democratic Union/Christian
Social Union (CDU/CSU) alliance, led by Friedrich Merz, won
Germany’s 2025 election, with Alternative for Germany (AfD) finishing
second and the Social Democrats (SPD) third. The election saw a
record turnout of 83.5%, the highest since reunification in 1990.

United Kingdom. UK CPI rose to 3% in January, mainly driven by

transport and food and alcoholic beverages, but partially offset by
housing and household services. Core inflation (which excludes
energy, food, alcohol, and tobacco) rose to 3.7%, from 3.2% in
December. On February 6, the Bank of England’s Monetary Policy
Committee voted to cut the policy rate to 4.5%.

In emerging economies, China saw manufacturing expectations

decline in January; India’s RBI looks to inject liquidity; Mexico’s
economic outlook remains uncertain.

China. The official PMI for manufacturing fell into the contraction
zone, recording 49.1 in January, down from 50.1 in December 2024.
Among the subindexes that make up the manufacturing PMI, the
production index recorded 49.8 (down from 52.1 in December 2024),
and the new orders index registered 49.2 (down from 51.0 in
December 2024), indicating a contraction in both supply and demand
in industrial activities.

India. Liquidity in India’s banking system has been shrinking and

reached its lowest level in nearly 15 years. According to a Bloomberg
Economics index, on January 26 the banking system cash deficit hit
3.3 trillion rupees ($37.8 billion) for the first time since April 2010.
The Reserve Bank of India (RBI) announced a host of measures to
inject durable liquidity into the system, including a 60 billion rupee
($686.6 million) bond purchase, a 56-day variable repo rate auction of
50 billion rupees ($572.2 million), and a $5 billion US dollar/rupee
buy/sell swap auction for a six-month tenure.

Brazil. Brazil’s manufacturing industry remained in expansion

territory at the beginning of the year, with the manufacturing PMI up
slightly from 50.4 in December to 50.7 in January. Although factory
orders continued to grow at the start of 2025, the rate of expansion
was marginal and the weakest since the current growth trend began
in January 2024.

Russia. The 2024 value of Russian exports contracted by 1% from

2023, with the trend worsening toward the end of the year, ultimately
contracting by 6% year on year in the fourth quarter. The value of oil
and petroleum products increased by about 2%, reflecting higher
prices, as volumes fell.

Mexico. Mexico’s economic outlook for 2025 has worsened. The Bank
of Mexico cut its GDP growth forecast from 1.2% to 0.6%, citing weak
private investment, slowing consumption, and declining public
spending. The economy had already contracted by 0.6% in the final
quarter of 2024, marking its first decline since 2021.

In other research, the McKinsey Global Institute finds that as women

switch jobs, they are less likely to move into occupations projected to
grow in demand, often moving instead into occupations destined to
shrink. “Tough trade-offs: How time and career choices shape the
gender pay gap” reports that by 2030, less than two-thirds of women
could be in occupations projected to grow relative to today if the
current trend continues, meaning the overall gender pay gap could
remain at current levels.

The same report finds that organizations that excel in both financial
performance and building human capital set themselves apart from
others by rotating people internally, having a focus on coaching, and
by fostering a culture that empowers employees while also
challenging them. As the future of work evolves, employers can
position themselves for this future by embracing these practices.

McKinsey’s Global Economics Intelligence (GEI) provides

macroeconomic data and analysis of the world economy. Each
monthly release includes an executive summary on global critical
trends and risks, as well as focused insights on the latest national and
regional developments. View the full report for February 2025 here.
Detailed visualized data for the global economy, with focused reports
on selected individual economies, are also provided as PDF downloads
on McKinsey.com. The reports are available free to email subscribers
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ABOUT THE AUTHOR(S)

The data and analysis in McKinsey’s Global Economics Intelligence are

developed by Sven Smit, a senior partner in McKinsey’s Amsterdam
office, Jeffrey Condon, a senior expert in the Atlanta office,
and Krzysztof Kwiatkowski, an expert in the Boston office.

The authors wish to thank Nick de Cent, as well as Darien Ghersinich,

Erik Rong, Fiorella Correa, Frances Matamoros, José Álvares, Juhi Daga,
Marianthi Marouli, Paula Trejos, Pragun Harjai, Ricardo Huapaya,
Sebastian Vargas, Tomasz Mataczynski, and Yifei Liu for their
contributions to this article.

The invasion of Ukraine continues to have deep human, as well as

social and economic, impact across countries and sectors. The
implications of the invasion are rapidly evolving and are inherently
uncertain. As a result, this document and the data and analysis it sets
out should be treated as a best-efforts perspective at a specific point
in time, which seeks to help inform discussion and decisions taken by
leaders of relevant organizations. The document does not set out
economic or geopolitical forecasts and should not be treated as doing
so. It also does not provide legal analysis, including but not limited to
legal advice on sanctions or export control issues.