Executive Summary

The Iran conflict is adding to global economic uncertainty as energy prices rise. Meanwhile, Q4 2025 data show a divergent growth picture across major economies: the US expanded by roughly 2.2%, China by 4.5%, Eurozone by 1.25% and the UK posted more modest growth of 1%y-o-y. Across markets, consumer affordability remains the dominant pressure point.

All eyes are on the Middle East following ongoing joint military action by the United States and Israel against Iran initiated on the final day of the month. Into March, global stock markets have wavered while oil and gas prices have risen following Iranian reprisals against neighboring petrochemical facilities and in reaction to Iran’s threat to close the Straits of Hormuz through which some 80 ships normally pass each day carrying around a fifth of global oil supplies. However, it should be noted that the energy price spike is not as severe as when Russia invaded Ukraine in February 2022. At the same time, gold prices jumped as investors seek a traditional safe haven. This economic volatility is in sharp contrast to the relative market stability experienced during the majority of February.

The IMF put out this statement on the situation in the Middle East on March 3: “We are closely monitoring developments in the Middle East. So far, we have observed disruptions to trade and economic activity, surges in energy prices, and volatility in financial markets. “The situation remains highly fluid and adds to an already uncertain global economic environment. It is too early to assess the economic impact on the region and the global economy. That impact will depend on the extent and duration of the conflict.”

Meanwhile, growth among surveyed developed economies varies, topped by the US, where real GDP rose 2.2% in 2025 (2.8% in 2024). This GDP expansion was supported by real consumer spending (up 2.7%) and real gross private domestic investment (up 2.0%). In Q4, real GDP rose 1.4%, down from Q3 (4.4%), reflecting a decline in government spending and a deceleration in consumer spending. In Europe, eurozone GDP grew 0.3% quarter on quarter in Q4 2025, matching Q3’s pace. Full-year 2025 growth reached 1.5%, the strongest growth rate in three years.

The growth outlook for 2026 ranges from 1.1% (Oxford Economics) to 1.2% (ECB, European Commission), a slowdown from the previous year’s performance. Modest growth continued through year-end in the UK where real GDP rose 0.1% month on month in December (0.2% in November). Growth in the three months to year-end was also 0.1%, driven by production, while services were flat and construction declined, leaving the expansion narrow. Full-year growth in 2025 was around 1.3%—slightly stronger than 2024 but still below the 1.5–2.0% pre-pandemic norm.

China’s government has set the country’s economic growth target for 2026 at around 4.5–5.0%. Meanwhile, Russia’s Q4 and 2025 full-year GDP growth was just 1% year on year, marking a slight pickup following a weaker Q3. The full-year slowdown was broad-based, both across domestic and external demand. Labor shortages and strained capacity utilization limited possibilities for further increases in output, despite an increase in government spending and widening deficit. The total output indicator accelerated towards the year’s end, bringing Q4 annual growth to 2.4%. This was mostly driven by a retail sales revival, which largely reflected transient factors: frontloading of purchases before an increase in the auto recycling fee at the start of December and the general increase in value-added tax rates at the start of this year.

Forward-looking indicators predict fading economic growth in the months ahead, amid eroding confidence among both consumers and businesses. January outlook updates from the International Monetary Fund, Consensus Economics, and CBR predict Russian GDP will grow by 0.8–1.0% this year. However, Oxford Economics foresees recession this winter, driven by more pronounced sanctions impact and a tight policy mix.

Consumer confidence generally remains subdued across economies, despite some improvement. However, UK retail sales rose sharply, while consumption in China fell for the first time since 2022. In the United States, the Consumer Confidence Index (Conference Board) dropped to 84.5 in January, from December’s revised 94.2, its lowest level since May 2014. Meanwhile, UK consumer confidence edged higher but remains subdued. In Brazil, consumer confidence stayed below the neutral 100 mark, with FGV’s (Fundação Getulio Vargas) seasonally adjusted January reading slightly down at 87.3.

US retail and food services sales in December (adjusted for seasonal variation and holiday and trading-day differences) were $735.0 billion, unchanged at 0.4% from November’s revised $735.1 billion. The UK, meanwhile, was a standout with retail sales volumes rising 1.9% month on month and 4.5% year on year, the strongest monthly gain since mid-2024, after a broadly flat late-2025 pattern.

Most central banks kept their policy rates unchanged this month, although Russia cut rates mid-month by 50 basis points, to 15.5%.

Inflation eased across developed economies, though Europe’s slowdown was partly driven by energy price base effects; core inflation remains more elevated, however. Among the emerging economies, India saw inflation pick up to 2.7% in January, while inflation in China remains close to 0% ahead of the Chinese New Year. Overall, inflation expectations have recently eased across both markets and consumers.

Looking at individual developed economies, the US consumer price index (CPI) rose 2.4% year over year in January, below December’s 2.7%. Core inflation was down, to 2.5% (annualized). In January, median inflation expectations dropped at the one-year-ahead horizon to 3.1%, from 3.4%. Eurozone headline inflation decreased to 1.7% in January, from 2% in December. This drop was largely explained by a base effect in energy prices after a spike in January 2025. Core inflation fell modestly in January to 2.2%, benefiting from softer growth momentum in services prices. The disinflationary trend is expected to remain in place. Similarly, UK inflation continued to cool in early 2026, albeit at a higher level. Headline CPI inflation fell from 3.3% in December to 3.0% in January, while core inflation declined from 3.2% to 3.1%.

Among surveyed emerging economies, India’s retail inflation rose to 2.75% in January, the first reading under the new CPI series (base year 2024) and up from 1.33% in December. The rise partly reflected higher precious metals prices and the rebasing effect, especially in gold and silver jewelry, with food inflation rebounding to 2.13% from –2.71%. In Brazil, inflation was up, touching 4.44% in January (versus 4.26% in December), but coming in below the central bank’s upper target limit of 4.50% for a third consecutive month. Similarly, annual inflation in Mexico increased marginally to 3.8% in January from 3.7% in December.

Russia remains something of a special case given the ongoing conflict with Ukraine and the effect of economic sanctions. Inflation slowed towards the end of last year, reaching 6% in December–January but consumer prices were still up 9% on average for the whole of 2025. Inflationary pressures continue this year, due to an increase in the VAT rate. The most recent forecasts see annual inflation slowing gradually to around 5% by the end of 2026.

On the commodities markets, precious metals have continued their surge, with both gold and silver at historical highs. After a brief dip in early February, following the announcement of Kevin Warsh as the new Fed chair, gold prices have continued to rise as buyers seek a hedge against market volatility, with a peak immediately after the US military action against Iran. Meanwhile, industrial metals have also seen recent rises with supply-side disruptions, combined with low inventories, pushing up copper and aluminum prices. Prior to the military action energy prices had been rising slightly after OPEC reaffirmed a pause in oil production increases for March, while US natural gas prices spiked amid adverse weather. Oil and gas prices have been surging since the onset of the Middle East conflict. Food prices were broadly stable in January 2026.

In the early part of the year, manufacturing and services growth picked up as international flows stabilized and export orders edged down only marginally. However, manufacturing remains uneven globally, with contraction persisting in some economies, while others see renewed expansion as supply chains normalize and sectoral demand improves. In contrast, services sectors remain positive across the board.

The US industrial production index increased slightly to 102.3 in January. However, the February S&P Manufacturing PMI (purchasing managers’ index) fell to 51.2 (52.4 in January), the lowest in seven months. It was a brightish start to the year for the UK with flash surveys suggesting activity is moving into mild expansion with the composite PMI at 53.9 in February—its highest level since April 2024.

Among emerging economies, the HSBC India Manufacturing PMI rose to 56.9 in February 2026 from 55.4 in January, preliminary data showed. The reading signaled stronger operating conditions and marked a robust expansion, supported by sustained growth in output and new orders. In Mexico, recent PMI data indicate continued weakness in the manufacturing sector. The manufacturing PMI rose slightly to 46.3 in January from 46.1 in December, but stayed below the 50.0 neutral threshold, signaling ongoing contractionary conditions. Factories faced their steepest drop in orders in seven months, triggering operational cutbacks. Export orders remained in contraction amid softer US demand but there were signs this may be moderating.

Looking at the latest services data, we see that the US services PMI was down to 52.3 in February (52.7 in January)—but still in the expansion zone. Similarly, in India the services PMI eased to 58.1 in February, from 58.5 the previous month.

US non-farm payroll employment increased in January (+130,000); job gains occurred in healthcare, social assistance, and construction, while federal government and financial activities shed jobs. The unemployment rate changed little at 4.3%. Meanwhile, in the UK, the labor market is loosening incrementally. Unemployment rose to 5.2% (October–December) from around 4% in 2023–24, while the claimant count edged up to 4.4% in January. Employee numbers have also drifted lower into early 2026. On the demand side, vacancies remain around 725,000 after a prolonged decline. Nominal pay growth cooled to 4.2% year on year in December from around 5% in late summer, while real pay growth eased to 0.5%, pointing to rising slack and easing wage pressures.

In Brazil, the three-month moving average unemployment rate edged towards 5.1% in January, compared with December’s 5.2%. Similarly, in Mexico, unemployment edged down to 2.6% in December from 2.7% in November. Formal employment trends point to weakening labor demand, declining from 22.8 million to 22.5 million registered jobs, with 320,692 formal jobs lost in December.

Equity markets were broadly stable throughout February, with Brazil and Japan outperforming as foreign investor inflows supported gains. However, volatility picked up across multiple markets. The cost of capital moved sideways in February.

The UK’s equity markets have strengthened broadly, with the FTSE 100 and FTSE All Share roughly 10% above late-summer levels. The rally extended into February, with record highs amid strong January data and expectations of near-term rate cuts. Ten-year gilt yields have eased from autumn highs but remain elevated by historical standards. Brazil’s Bovespa equities index trended higher in January, rising 12.6% in value; February 2026 results up until the 20th were already climbing higher, up 3.9%.

Export growth broadened in 2025, led by Mexico and the US, with China strong and Europe stabilizing. Last year’s imports growth presented a slightly different picture, reflecting resilient emerging markets and US demand, but weaker momentum in China.

Seaborne trade softened into late 2025, with total volumes easing and container throughput cooling after mid-year strength. At the same time, logistics conditions remained broadly normal in late 2025, with a slight uptick in supply-chain stress in December. Inbound spot freight rates continued to normalize into 2026 from mid-2025 highs, while outbound freight rates to Shanghai eased after a June spike and stabilized going into the year-end.

On February 20, 2026, the U.S. Supreme Court ruled that reciprocal tariffs imposed under the International Emergency Economic Powers Act exceeded presidential authority, in a 6-3 decision striking down President Donals Trump’s authority to impose tariffs without Congressional approval. In response, the administration announced import surcharges under Section 122 of the Trade Act of 1974 to replace the invalidated tariffs. Meanwhile, US exports in December reached $287.3 billion, $5.0 billion less than November; imports were $357.6 billion, $12.3 billion up on November. The monthly deficit rose 32.6% to $70.3 billion.

In the eurozone, meanwhile, net exports will remain under pressure from US tariffs, competition with Asian economies, and still uncertain global demand. The EU and India have signed a free-trade agreement after many years of negotiations, which were interrupted several times. As of now, it has strong symbolic value in a world of rising protectionism, rather than immediate economic effects, as it will be implemented gradually over many years. The deal will eliminate or significantly lower tariffs on more than 95% of EU goods exports. In the UK, the trade deficit narrowed into year-end, with a goods shortfall partly offset by a stronger services surplus, though structural improvement remains limited.

Among emerging economies, India’s merchandise trade deficit widened significantly to $34.68 billion in January 2026, due to $71.24 billion in imports and $36.56 billion in exports, driven by surging gold, silver, fertilizers, and electronics imports. Brazil’s January trade balance posted a surplus of US $4.3 billion, down from US $9.3 billion in December. The smaller surplus was driven by a bigger decrease in exports (US $25.1 billion in January, down from US $31 billion in December) than the drop in imports (US $20.8 billion in January, down from US $21.4 billion in December). Mexico posted a US $2.43 billion trade surplus in December 2025, with both exports and imports rising. Exports increased from US $56.4 billion in November to US $60.7 billion in December, while imports rose from US $55.7 billion to US $58.2 billion. The surplus was driven by stronger non-oil exports, particularly manufactured goods, which expanded faster than imports despite a decline in oil export values.

Regional and Country Summary

US economy grew 2.2% in 2025, eurozone full-year growth for 2025 reached 1.5%, while UK achieved about 1.3%; US military strikes Iran.

United States

Bureau of Economic Analysis releases GDP numbers for Q4 and full-year 2025; US strikes Iran.

Real GDP rose 2.2% in 2025 (2.8% in 2024). This GDP expansion was supported by real consumer spending (up 2.7%) and real gross private domestic investment (up 2.0%). Real exports rose 1.7%, while imports climbed 2.7%, weighing on net trade. Government spending grew 1.2% overall, offset by a 1.2% cut in federal spending. In Q4, real GDP rose 1.4%, down from Q3 (4.4%), reflecting a decline in government spending and a deceleration in consumer spending.

The U.S. Supreme Court ruled that reciprocal tariffs imposed under the International Emergency Economic Powers Act exceeded presidential authority, removing those measures. In response, the administration announced import surcharges under Section 122 of the Trade Act of 1974 to replace the invalidated tariffs.

Non-farm payroll employment increased in January (+130,000); job gains occurred in healthcare, social assistance, and construction, while federal government and financial activities shed jobs. The unemployment rate changed little at 4.3%.

The consumer price index (CPI) rose 2.4% year over year in January, below December’s 2.7%. Core inflation was down, to 2.5% (annualized). In January, median inflation expectations dropped at the one-year-ahead horizon to 3.1%, from 3.4%.

December exports reached $287.3 billion, $5.0 billion less than November. December’s imports were $357.6 billion, $12.3 billion up on November. The monthly deficit rose 32.6% to $70.3 billion.

December’s retail and food services sales (adjusted for seasonal variation and holiday and trading-day differences) were $735.0 billion, unchanged at 0.4% from November’s revised $735.1 billion. The Consumer Confidence Index (Conference Board) dropped to 84.5 in January, from December’s revised 94.2, its lowest level since May 2014.

On the housing market, the 30-year fixed-rate mortgage decreased slightly to 6.1% in January. Existing home sales fell 8.4% in January. During December, housing residential starts increased to 1,404,000, a 6.2% increase from a revised November estimate of 1,322,000. Completions in December were up, reaching 1,525,000, a 2.3% increase from a revised November estimate of 1,490,000.

The industrial production index increased slightly to 102.3 in January. In February S&P’s Manufacturing PMI (purchasing managers’ index) fell to 51.2 (52.4 in January), the lowest in seven months; the services PMI was down to 52.3 in February (52.7 in January).

Fed Governor Christopher Waller said a March rate cut was uncertain, calling it a “coin flip” after a stronger-than-expected January labor report; upcoming inflation and labor data will determine whether the Committee adjusts the federal funds rate.

On February 28 the US military struck Iran, which retaliated with drone and missile strikes in the region.

Eurozone

Eurozone growth improved modestly towards end of 2025; mixed signals from high-frequency indicators suggest rather soft start to the year; inflation well within target; EU and India have signed free-trade agreement.

Eurozone GDP grew 0.3% quarter on quarter in Q4 2025, matching Q3’s pace. Full-year 2025 growth reached 1.5%, the strongest growth rate in three years. Spain outperformed at 2.8%, while other large economies grew below 1%: Germany 0.3%, France 0.9%, Italy 0.7%. The expenditure breakdown is not yet available at the eurozone level, but available national data point to strong increases in private consumption and investment.

The growth outlook for 2026 is at 1.1% (Oxford Economics) to 1.2% (ECB, European Commission), a slowdown from last year’s performance. Drops in December’s industrial production and retail sales imply a negative carryover for 2026, despite sentiment indicators signaling expansion. There are also mixed signals on lending. Credit flows picked up to a three-year high in Q4, but forward-looking surveys suggest a subdued near-term credit outlook. Domestic demand this year will be determined by the rollout of Germany’s fiscal stimulus, potentially creating a favorable environment for gradual improvement. However, the fiscal boost may need time to feed through the economy, as the program is concentrated in sectors that are already operating at full capacity, limiting the ability of production to respond quickly to higher demand. Accordingly, the full impact might only become visible in 2027.

Net exports will remain under pressure from the US tariffs, competition with Asian economies, and still uncertain global demand. Thus, growth will rely on consumers. Solid labor markets and healthy growth in real incomes underpin the outlook for household spending, which, on the other hand, will likely be held back by weak sentiment.

Headline inflation decreased to 1.7% in January, from 2% in December. This drop was largely explained by a base effect in energy prices after a spike in January 2025. Core inflation fell modestly in January to 2.2%, benefiting from softer growth momentum in services prices. The disinflationary trend is expected to remain place. This places the ECB in a comfortable position: in its first meeting of this year the central bank decided to keep policy rates unchanged. The easing cycle is likely over, unless an unexpected shock happens that would require a significant reassessment of the growth or inflation outlooks.

The EU and India have signed a free-trade agreement after many years of negotiations, which were interrupted several times. As of now, it has strong symbolic value in a world of rising protectionism, rather than immediate economic effects, as it will be implemented gradually over many years. The deal will eliminate or significantly lower tariffs on more than 95% of EU goods exports.

United Kingdom

Growth is stabilizing but remains weak: inflation is easing and consumption has improved, even as labor market slack continues to build.

Modest growth continued through year-end. UK real GDP rose 0.1% month on month in December after 0.2% in November. Growth in the three months to year-end was also 0.1%, driven by production, while services were flat and construction declined, leaving the expansion narrow. Full-year growth in 2025 was around 1.3%—slightly stronger than 2024 but still below the 1.5–2% pre-pandemic norm.

Looking ahead to early 2026, flash surveys suggest activity moved into mild expansion, with the composite purchasing manager’s index (PMI) at 53.9 in February—its highest level since April 2024. Consensus forecasts point to GDP growth of around 1.1% this year, rising to 1.4% in 2027—consistent with gradual stabilization.

The standout upside over the past month has been household spending. Retail sales volumes rose 1.9% month on month and 4.5% year on year, the strongest monthly gain since mid-2024, after a broadly flat late-2025 pattern. Consumer confidence edged higher but remains subdued.

The labor market is loosening incrementally, not abruptly. Unemployment rose to 5.2% (October–December) from around 4% in 2023–24, while the claimant count edged up to 4.4% in January. Employee numbers have also drifted lower into early 2026. On the demand side, vacancies remain around 725,000 after a prolonged decline. Nominal pay growth cooled to 4.2% year on year in December from around 5% in late summer, while real pay growth eased to 0.5%, pointing to rising slack and easing wage pressures.

Inflation continued to cool in early 2026. Headline consumer price index (CPI) inflation fell from 3.3% in December to 3.0% in January, while core inflation declined from 3.2% to 3.1%. Monthly data do not indicate renewed inflation momentum, and producer prices suggest easing cost pressures. February’s confirmation of Ofgem’s April energy price cap cut—lowering regulated household tariffs—reinforces the near-term disinflation trend.

Financial conditions have eased modestly but remain restrictive. With inflation and wage growth cooling, the Bank of England held the Bank Rate at 3.75% (5–4 vote split), reiterating that rates are “likely to be reduced further,” conditional on inflation persistence.

Public finances were stronger than expected in January, with a record monthly surplus of around £30 billion and year-to-date borrowing below the Office of Budget Responsibility’s (OBR) November forecast. Debt remains in the low-to-mid-90s as a percentage of GDP, limiting fiscal space ahead of the March Spring Statement.

Equity markets have strengthened broadly, with the FTSE 100 and FTSE All Share roughly 10% above late-summer levels. The rally extended into February, with record highs amid strong January data and expectations of near-term rate cuts. Ten-year gilt yields have eased from autumn highs but remain elevated by historical standards.

Housing indicators point to stabilization rather than renewed strength. Mortgage rates remain in the mid-4% range, while Halifax reported house prices rose modestly in January (+0.7% month on month) after a subdued late-2025 profile. Listings have increased, suggesting improving confidence.

The trade deficit narrowed into year-end, with a goods shortfall partly offset by a stronger services surplus, though structural improvement remains limited.

China sets 4.5–5.0% growth rate for 2026; India’s real GDP growth for FY 2025–26 estimated at 7.4%; inflation in Brazil and Mexico edges up.

China

Government has announced a target growth rate of 4.5–5.0% for the economy in 2026; inflation remains subdued and financial markets have largely taken the news in their stride.

Due to the Chinese New Year, much of the latest statistical data has not yet been released. Nevertheless, the government has set the economic growth target for 2026 at around 4.5–5.0%, marking the lowest target since the early 1990s. Both domestic and external factors were cited as key reasons for the more cautious outlook. On the domestic front, continued uncertainty surrounding the construction and real estate sectors remains a major concern. Externally, rising global volatility—driven by rapidly changing tariff policies and tensions in the Middle East—continues to weigh on the outlook.

Among the limited data released so far, inflation figures point to persistently weak price pressures. Consumer price growth slowed from 0.8% year on year in December to 0.2% in January. The near-zero inflation rate reflects a combination of prolonged producer price deflation and still-muted domestic demand.

Financial markets have remained relatively stable at the start of the year. The renminbi appreciated modestly against the US dollar through February, supported by stable external balances and relatively steady capital flows. Equity markets also showed limited movement, with both the Shanghai and Shenzhen indexes broadly stable as investors balanced ongoing domestic economic softness against expectations of continued policy support.

At the same time, credit conditions loosened at the beginning of the year, as banks significantly increased lending activity following the typical seasonal pattern of front-loaded credit issuance. Monetary conditions also remained accommodative, with broad money supply growth picking up compared with the previous month, suggesting that authorities continue to maintain ample liquidity to support economic activity amid a still-fragile recovery.

India

India’s economy shows resilience despite global uncertainty and continued structural pressures; RBI noted in February that India remains firmly on track with strong growth momentum, with real GDP growth for FY 2025–26 estimated at 7.4%—up from its earlier 7.3% estimate.

The HSBC India Manufacturing PMI (purchasing managers’ index) rose to 56.9 in February 2026 from 55.4 in January, preliminary data showed. The reading signaled stronger operating conditions and marked a robust expansion, supported by sustained growth in output and new orders. The services PMI eased to 58.1 from 58.5 the previous month.

India’s infrastructure output grew 4.0% year on year in January 2026, marking a sequential deceleration. Crude oil declined by 5.8% and refinery products remained flat at 0.0%, respectively. Natural gas declined by 5.0% and coal output grew by 3.1%. Fertilizers grew by 3.7%, while cement and steel grew at 10.7% and 9.9%, respectively. Electricity generation rose 3.8%. This represents a moderate slowdown from December’s revised 4.7% growth, reflecting a concentrated weakness in certain core sectors that form 40% of the industrial production base.

India’s retail inflation rose to 2.75% in January, the first reading under the new consumer price index (CPI) series (base year 2024) and up from 1.33% in December. The rise partly reflected higher precious metals prices and the rebasing effect, especially in gold and silver jewelry, with food inflation rebounding to 2.13% from –2.71%.

This keeps inflation well within the Reserve Bank of India’s (RBI) 2–6% tolerance band, maintaining improved price stability for consumers. However, RBI revised its FY 2025–26 CPI forecast upwards to 2.1% from 2.0%, maintaining a cautious outlook regarding potential food price volatility. Despite a 3.3% correction in January, the Indian market showed resilience, with the SENSEX recovering 1.8% in February.

Overall, the recovery was supported by record foreign exchange reserves of $725.7 billion and reinforced by the Securities and Exchange Board of India’s (SEBI) new Stock Brokers Regulations, 2026 (effective January 8, 2026) that strengthen broker governance and investor protection. India’s merchandise trade deficit widened significantly to $34.68 billion in January 2026, due to $71.24 billion in imports and $36.56 billion in exports, driven by surging gold, silver, fertilizers, and electronics imports.

India and the European Union concluded negotiations on a comprehensive free trade agreement on January 27, 2026. Meanwhile, negotiations toward a trade deal between India and the United States reached a framework agreement in early February, though implementation adds uncertainty to the broader US tariff environment.

RBI paused its easing cycle, maintaining the policy repo rate at 5.25% and shifting to a neutral stance in its February 6 review. Markets increasingly view 5.25% as near the terminal rate, shifting focus to liquidity management and fine-tuning operations.

Brazil

Despite a January inflation bump, Brazil´s central bank notes it may cut base rates soon.

At the Banco Central do Brazil’s Monetary Policy Committee (Copom) meeting on January 28, the Selic rate was held at 15% in a unanimous decision. Copom, however, changed its guidance towards a more dovish position, noting that it may start to cut rates in March. If the expected scenario is confirmed, the committee will look to be more flexible around monetary policy at its next meeting—which takes place on March 17 and 18.

Inflation was up, touching 4.44% in January (versus 4.26% in December), but coming in below the central bank’s upper target limit of 4.50% for the third month in a row.

The three-month moving average unemployment rate edged towards 5.1% in January, compared with December’s 5.2%.

On the financial markets, the average monthly real–US dollar exchange rate was BRL 5.33 per USD in January (BRL 5.45 in December). The Bovespa equities index trended higher in January, rising 12.6% in value; February 2026 results up until the 20th were already climbing higher, up 3.9%.

Consumer confidence stayed below the neutral 100 mark, with FGV’s seasonally adjusted January reading slightly down at 87.3. Business confidence rose slightly to 92.5. Construction confidence reached 94.0, up from December’s 91.4.

Brazil’s manufacturing production dropped: the Monthly Industrial Physical Production (PIM) Index decreased from 103.2 in November to 94.4 in December (below the neutral 100 line). The negative movement was driven by factory production, which fell 11.17%, while extractive production has risen 5.3%. On aggregate, however, November 2025’s results were only 0.3% above those from the same period last year.

The Monthly Services Survey (PMS) revenue index increased to 138.5 in December from 128.06 in November (staying above the neutral 100 line). This was mirrored in the volume index, which increased to 119.3 (from 111.4). The largest revenue increase was in audiovisual and news services (up 23.6% since November), followed by IT services (up 15.7%). Meanwhile, audiovisual and news services volumes climbed 20%, while the lodging segment increased 19%. The standout negative result was in road transportation, which decreased 4% in terms of revenue and 2.6% in volume—down 3.5% in volume in the case of road cargo transportation.

January’s trade balance recorded a surplus of US $4.3 billion, down from US $9.3 billion in December. The smaller surplus was driven by a faster decrease in exports (US $25.1 billion in January, down from US $31 billion in December) than the drop in imports (US $20.8 billion in January, down from US $21.4 billion in December).

On February 12, Supreme Court Justice José Antonio Dias Toffoli recused himself from presiding over the case of Banco Master, which was liquidated in November 2025 with an estimated 52 billion real (US $10.14 billion) loss to the Credit Guarantee Fund (FGC). It was alleged that the judge had economic ties with former Banco Master president Daniel Vorcaro, in relation to a resort in Paraná. The case was taken over by Justice André Mendonça.

Russia

GDP growth improved towards end of 2025 due to transient factors; modest growth forecast for 2026; loose fiscal and tight monetary policy combination.

Russia’s Q4 and 2025 full-year GDP growth was just 1% year on year, marking a slight pickup following a weaker Q3. The full-year slowdown was broad-based, both across domestic and external demand. Labor shortages and strained capacity utilization limited possibilities for further increases in output, despite an increase in government spending and widening the deficit. GDP growth last year was again driven by industries linked to the war effort. On the external front, the value of goods and services exports contracted by 14% last year, mostly reflecting reducing oil prices, while the value of imports declined by 9%.

The total output indicator accelerated towards the year’s end, bringing Q4 annual growth to 2.4%. This was mostly driven by a retail sales revival, which largely reflected transient factors: frontloading of purchases before an increase in the auto recycling fee at the start of December and the general increase in value-added tax rates at the start of this year.

Forward-looking indicators predict fading economic growth in the months ahead, amid eroding confidence among both consumers and businesses. The January reading from the Central Bank of Russia’s (CBR) survey of business sentiment was at its lowest since 2022. The most recent forecasts anticipate modest Russian GDP growth this year. January outlook updates from the International Monetary Fund, Consensus Economics, and CBR predict Russian GDP will grow by 0.8–1.0% this year. However, Oxford Economics foresees recession this winter, driven by more pronounced sanctions impact and a tight policy mix. Private consumption, supported by wage growth, will remain the main growth driver, while exports will suffer from sanctions. Still, consumer outlook remains uncertain, due to the January VAT hike and planned fiscal consolidation affecting the government’s social spending.

The government deficit was the largest since the full-on invasion of Ukraine began four years ago, reaching 2.6% of GDP—government spending growth has remained robust, while revenue growth has been depressed by reduced oil and gas earnings. In 2025, consolidated spending for the full year grew by 13%, while revenues were up 2.5%.

Supply shortages also stoked inflationary pressures, which were, however, restrained by monetary policy. CBR, nevertheless, began to lower its key rate gradually in the second half of 2025. At its February meeting, the council decided to cut interest rates by 50 basis points to 15.5%, down from 19% in mid-2025. Inflation slowed towards the end of last year, reaching 6% in December–January but consumer prices were still up 9% on average for the whole of 2025. Inflationary pressures continue this year, due to the increase in VAT rate. The most recent forecasts see annual inflation slowing gradually to around 5% by the end of this year.

Mexico

The Mexican economy sent out mixed signals, with weak activity, slightly higher inflation, job losses, and a stronger peso amid a trade surplus.

GDP grew 0.8% in 2025 as reported by the official national statistics body INEGI, slightly above initial estimates of 0.7% and marking the weakest expansion since 2020. Growth was driven by strong performance in services and agriculture, while key segments such as manufacturing, mining, and wholesale trade contracted.

Annual inflation in Mexico increased marginally to 3.8% in January from 3.7% in December. The Bank of Mexico’s policy rate target remained at 7% for January.

On the markets, the Mexican peso appreciated against the US dollar, averaging MXN 17.7 per USD in January compared with MXN 18.1 in December. Recent purchasing managers’ index (PMI) data indicate continued weakness in the manufacturing sector. The manufacturing PMI rose slightly to 46.3 in January from 46.1 in December, but stayed below the 50.0 neutral threshold, signaling ongoing contractionary conditions. Factories faced the steepest drop in orders in seven months, triggering operational cutbacks. Export orders remained in contraction amid softer US demand but there were signs this may be moderating.

On the labor market, unemployment edged down to 2.6% in December from 2.7% in November. Formal employment trends point to weakening labor demand, declining from 22.8 million to 22.5 million registered jobs, with 320,692 formal jobs lost in December.

On trade, Mexico posted a US $2.43 billion trade surplus in December 2025, with both exports and imports rising. Exports increased from US $56.4 billion in November to US $60.7 billion in December, while imports rose from US $55.7 billion to US $58.2 billion. The surplus was driven by stronger non-oil exports, particularly manufactured goods, which expanded faster than imports despite a decline in oil export values.

Petroleos Mexicanos (Pemex), Mexico’s national oil company, reduced its financial debt by 13.4% compared with 2024—to approximately US $84.5 billion in 2025, the lowest level in 11 years—supported by government debt purchases and cash injections. The national company plans to invest around US $24 billion in 2026, in partnership with the private sector, to support efforts to stabilize upstream production and improve operational efficiency, as the government aims for self-sufficiency by 2027. Credit rating agencies have upgraded its ratings, although supplier debt of around $20 billion remains a key structural challenge, alongside weaker demand for Mexican crude.

On Sunday, February 22, Mexican security forces killed Nemesio Rubén Oseguera Cervantes (“El Mencho”), the alleged leader of the Jalisco New Generation Cartel (CJNG), during an operation intended to capture him. The killing was followed by coordinated retaliatory violence, including numerous highway blockades and arson attacks across multiple states. In the Guadalajara area, reports described burned-out vehicles, blocked roads, and temporary business closures, with residents sheltering in place—raising concerns about disruption ahead of the city’s planned FIFA World Cup hosting. According to the White House, the operation was carried out with intelligence support from the United States.

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Shubham Singhal is the Chair of McKinsey's Global Institute and a senior partner in the Detroit office;  Arvind Govindarajan is a partner in the Boston office. The data and analysis in McKinsey’s Global Economics Intelligence are developed by Jeffrey Condon, a senior expert in McKinsey’s Atlanta office;  Krzysztof Kwiatkowski  is an expert in the Boston office.

The authors wish to thank Nick de Cent, as well as Masud Ally, José Álvares, Roman Büschgens, Darien Ghersinich, Gabriel Marini, Tomasz Mataczynski, Frances Matamoros, Alejandro Morales, Beatriz Oliveira, Debdoot Ray, Erik Rong, Vanshika Tandon, Valeria Valverde, and Sebastian Vargas for their contributions to this article.

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