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Executive Summary
In a moment of tariffs, markets fluctuated but have now returned to early April levels. Q1 US GDP data indicated growth in consumer spending and investments, potentially in anticipation of tariff effects, despite a 0.3% contraction in the overall economy. Meanwhile, China and Europe outpaced market growth expectations in Q1 2025. Global consumer confidence declined, though spending remains in positive territory.
Persistent high consumer prices and elevated levels of uncertainty continue to affect households, leading to low levels of overall consumer confidence in the United States and beyond. Nevertheless, despite this uncertainty, leading indicators were above long-term trend across the main economies during March. The main economies are continuing to reduce interest rates, except for Russia and Brazil, which have been raising rates to combat high inflation. On March 19, the Banco Central do Brasil’s Monetary Policy Committee (Copom) followed through on its earlier guidance, raising the Selic rate from 13.25% to 14.25%. Copom signaled that a smaller adjustment is likely at its upcoming May meeting. The Central Bank of Russia, meanwhile, maintained its key interest rate at a high level: 21%. The US held rates steady at 4.25–4.50%, where they have remained since December. By contrast, the Reserve Bank of India (RBI) lowered key interest rates by 25 basis points on April 9, while the European Central Bank (ECB) made a similar cut on April 17. Recent policy has weighed on growth in the United States. Real gross domestic product (GDP) decreased at an annual rate of 0.3% in the first quarter of 2025, according to the advance estimate released by the U.S. Bureau of Economic Analysis on April 30. For comparison, the fourth quarter of 2024 saw real GDP increase by 2.4%. This Q1 drop in real GDP primarily reflects an increase in imports, which are a subtraction in the GDP calculation together with a fall in government spending. These movements were partly offset by increases in investment, consumer spending, and exports. Across the Pond in Europe, the euro area economy is expected to grow by 0.8% in 2025 and 1.2% in 2026 (a downward revision of two percentage points for 2025), according to the IMF’s April 2025 projections This subdued growth is partially offset by Germany’s significant fiscal stimulus. However, other downside risks remain given weak export activity and ongoing investment challenges, partly attributable to increased trade policy uncertainties. Meanwhile, China’s GDP was reported a stronger-than-expected growth rate of 5.4% year on year in the first quarter of 2025—market consensus was around 5.2%. Consumption accounted for 51.7% of the GDP growth, trade for 39.5%, and investment for 8.7%. Russia’s economic development ministry estimates GDP growth in January–February at 2% year over year. Published sectoral data suggest this was driven by declines in mining (oil and gas) and stabilization in manufacturing after its December peak. Total output indicators declined by 3–4% compared to the Q4 2024 level. The latest BOFIT and Oxford Economics forecasts see Russian GDP growth slowing significantly to 2% in 2025. Even if the government plans further fiscal expansion to boost the economy, it is already facing labor shortages and capacity constraints in industry. |
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US consumer confidence tumbled again in March; this time driven by stock market volatility and persistent inflation concerns. March’s consumer confidence index reading (Conference Board) declined by 7.2 points to reach 92.9 in April, its lowest point since 2022. In Brazil, consumer confidence remained below the neutral 100 mark, falling to 84.6 in March (from 85.6 in February), its lowest level since February 2023—likely weighed down by elevated borrowing costs.
This decline in consumer confidence put the brakes on consumer spending, which continues to slow across the main economies. There’s a similar picture in Russia with consumer demand appearing to stall, but for different reasons, with the volume of retail sales essentially unchanged for nearly a year as strong inflation erodes gains in nominal wages and the purchasing power of consumers. Overall, inflation expectations have continued within a 2.0–2.5% range. In March, median inflation expectations in the US increased by 0.5 percentage points 3.6% at the one-year horizon. Most commodity prices appeared to be stable in April, but they all remain significantly higher than pre-pandemic levels. Food prices were broadly unchanged in March and remain some 23% above pre-pandemic levels. Energy prices moved sideways, with industrial metals also following a similar constant trend over recent weeks. However, gold continues to soar amid this period of uncertainty, with the latest mark at $3,381 per ounce. Among developed economies, inflation continues to ease, showing a horizontal trend. It’s a similar situation among the surveyed emerging economies, with only Russia experiencing accelerating momentum. In the US, the consumer price index (CPI) rose 2.4% over the 12 months ending March, after increasing 2.8% over the 12 months ending February. Core inflation decreased slightly to 2.8% (annualized). However, March saw median inflation expectations rise by 0.5 percentage points to 3.6% at the one-year horizon. Headline inflation in the eurozone eased to 2.2% in March, driven by a drop in energy inflation (–1.0%) and slowing core inflation (+2.4%) as services inflation cooled to 3.5%. Meanwhile, producer prices carried on rising, with a 2.6% month-on-month increase in February. UK CPI inflation fell to 2.6% in March, down from February’s 2.8%, according to the Office for National Statistics. Core CPI rose by 3.4% in the 12 months to March 2025 (February 3.5%). India’s retail inflation slipped to a more-than-five-year low of 3.34% in March as food prices continued to moderate. The Reserve Bank of India lowered the key policy interest rate by 25 basis points to 6.00% on April 9—its second consecutive cut this year. Similarly, Mexico’s annual inflation rate held steady at 3.8 in March. The Bank of Mexico lowered the benchmark interest rate by 50 basis points to 9.00% on March 27—its fifth cut in six months—in an effort to boost investment and counter signs of economic slowdown. In Brazil, inflation accelerated to 5.48% in March, up from 4.83% in December, marking its second consecutive monthly increase and reaching its highest level since February 2023. The inflation rate remains above the Central Bank’s upper target limit of 4.50%. The Central Bank of Russia, meanwhile, expects inflation to return to target only in 2026. In the UK, business confidence dropped to a near two-and a-half year low, amid concerns about government policy, rising costs, increased geopolitical tensions, and as potential tariff uncertainty weighed on both current and future expectations. However, business confidence in Brazil rose slightly to 93.7 (from 92.7 in February). The global purchasing managers’ indexes (PMIs) indicate that both the manufacturing and services sectors were in expansion territory in March, with services rebounding from a dip in February. However, individual country PMIs suggest that manufacturers remain cautious while demand slows and both input and output prices accelerate. |
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Taking a closer look at the developed economies, industrial activity in the US again gave out mixed signals, although they were somewhat positive. The industrial production index fell slightly to 103.9 in March (104.2 in February). March’s manufacturing PMI rose to 50.7 in April from 50.2. In Europe, the industrial production index increased by 1.1% month on month and grew 0.6% year on year. The composite PMI dropped to 50.1 in April (March: 50.9); the manufacturing PMI rose to 51.2. Meanwhile, the seasonally adjusted S&P Global UK Manufacturing PMI fell to a 17-month low of 44.9 in March, down from 46.9 in February but slightly above the earlier flash estimate of 44.6. The PMI has now signaled a deterioration in overall operating conditions in each of the past six months. * * * In a volatile economic world afflicted by uncertainty, plunging consumer confidence, and a potential recession, many would agree the need to find a new balance in which the United States produces more of what it consumes and China consumes more of what it produces, while Europe is competitive and can grow, and the “global south” connects with advanced economies and finds a path to prosperity.
The article discusses the importance of business leaders taking steps to understand the range of opportunities and challenges created by the various economic outcomes ahead. Just as importantly, companies should be asking what strategic moves are needed to succeed in these new environments. |
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Regional and Country Summary
Inflation expectations erode US consumer confidence; ECB cuts rates amid eurozone GDP growth downgrade; UK awaits US and EU trade moves.
United States Consumers remain cautious as expectations of higher inflation in the coming years weigh on confidence. Financial markets plunged, reversing year-long gains. Meanwhile, on April 2, US policy intensified tariff measures. Real GDP declined by 0.3% in Q1 2025, primarily driven by increased imports. Real GDP declined by 0.3% (q-o-q, annualized) in Q1 2025, driven primarily by increased imports as both consumers and businesses frontloaded purchases ahead of tariff implementation. Government consumption also weighed on GDP growth, contracting by 0.4%. However, this masks some underlying economic resilience. Private consumption grew by 0.4%, and investments (excluding the most volatile components) rose by 1.9%, supported by strong equipment purchases. Consumer confidence was in the spotlight again as it tumbled in March and April, driven by stock market volatility and persistent inflation concerns. The Conference Board’s consumer confidence index fell by 7.2 points in March, reaching 92.9 in April — its lowest level since 2022. On the equity markets, the S&P 500 was down 5.8%, bringing the one-year return to –4.6%. The Dow Jones lost 4.2% over the month of April and fell to a 1.3% annual growth, with some commentators highlighting its worst April performance since 1932 during the Great Depression. During March, the CBOE Volatility Index averaged 21.8, compared to 19.6 in February. In the housing market, the 30-year fixed mortgage rate held steady at 6.7%. During March, housing residential starts decreased to 1,324,000 (below the revised February estimate of 1,494,000), a 11.4% decline. Completions in March were down to 1,549,000 from 1,582,000, according to revised figures for February. |
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The consumer price index (CPI) rose 2.4% over the 12 months ending March, after rising 2.8% over the 12 months ending February. Core inflation decreased slightly to 2.8% (annualized). In March, median inflation expectations increased by 0.5 percentage points to 3.6% at the one-year horizon.
Trade data did not change significantly: February exports climbed slightly to $278.5 billion, $8.0 billion more than January exports; February imports came in at $401.1 billion, $0.1 billion less than January’s imports. The monthly deficit decreased to $122.7 billion in February, down –6.1%. The labor market showed modest changes: unemployment edged up slightly to 4.2% in March, while nonfarm payrolls rose by 228,000. However, the overall number of workers has remained relatively stable over the past two to three years. Industrial activity presented mixed signals. The industrial production index edged down to 103.9 in March, from 104.2 in February. However, the ISM manufacturing purchasing managers’ index (PMI) rose to 50.7 in April (from 50.2 in March), while the services PMI declined to 51.4 in April (from 54.4 in March). As of its March meeting, the Federal Open Market Committee (FOMC) held rates steady at 4.25–4.50%, where they have remained since December. On April 2, the Trump administration announced a minimum 10% tariff on all imports, with higher rates for countries running a trade surplus with the U.S. These higher tariff measures were temporarily paused for 90 days — except for those applied to China — during which negotiations with trading partners will take place. |
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Eurozone
GDP growth in 2025 downgraded amid trade policy uncertainties; headline inflation slowed to 2.2%; German stimulus plan totals about €1 trillion. According to the IMF’s April 2025 projections, the euro area economy is expected to grow by 0.8% in 2025 and 1.2% in 2026 (a downward revision of two percentage point for 2025). This subdued growth is partially offset by Germany’s significant fiscal stimulus. However, other downside risks remain given weak export activity and ongoing investment challenges, partly attributable to increased trade policy uncertainties. The World Trade Organization estimates that Europe’s trade decline in 2025 will likely remain below 1%, although what this means for coming years is difficult to predict. Oxford Economics’ latest projections point to a 2% drop in goods exports at the end of 2027 versus last month’s estimate. Meanwhile, the eurozone trade surplus increased in February, up from €0.8 billion in January to €24.0 billion. This surplus was mainly due to a remarkable increase in the surplus for chemicals (from €24.8 billion to €30.3 billion) and machinery and vehicles (from €7.2 billion to €16.0 billion). In March, headline inflation eased to 2.2%, driven by a drop in energy inflation (–1.0%) and a slowdown in core inflation (+2.4%) as services inflation cooled to 3.5%. Meanwhile, producer prices continued rising, with a 2.6% month-on-month increase in February. |
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IMF projections show inflation is expected to be 2.1% in 2025, 1.9% in 2026, and 2.0% in 2027. For core inflation, ECB staff projections are: 2.6% in 2025 (+0.3% pp), 2.1% in 2026 (+0.2 pp), and 2.0% in 2027.
The ECB cut key interest rates by 25 basis points on April 17. The decision to lower rates was driven by an updated assessment of the inflation outlook, underlying inflation dynamics, and the effectiveness of monetary policy transmission. The forward-looking indicator, Eurocoin dropped to 0.25 in March. The industrial production index increased by 1.1% month on month and grew 0.6% year on year. The composite PMI decreased to 50.1 in April (March: 50.9); the services PMI declined to 49.7 in April (March: 51.0); the manufacturing PMI rose to 51.2. Europe’s STOXX 600 is generally trending upward, though it saw a slight decline in April. Germany has approved a fiscal stimulus package worth some €1 trillion. Measures include loosening the constitutional debt brake and giving federal states (Länder) some budget flexibility, allowing them to run a small structural deficit of 0.35% of their economic output. Additionally, the plan includes €500 billion in investments across 12 years, with substantial amounts earmarked for infrastructure and climate transition. |
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United Kingdom
CPI inflation falls to 2.6% in March; monthly real GDP up by 0.5% in February with growth in all main sectors; IMF slashes the UK’s 2025 and 2026 growth forecast; BoE maintains policy rate at 4.5% in March. The International Monetary Fund (IMF) downgraded the UK’s 2025 growth forecast in its latest economic outlook released on April 22, warning that US trade tariffs, higher borrowing costs, and increased energy prices will dent output this year. The IMF’s growth projection for 2025 is 1.1%, lower by 0.5 percentage points compared to its January forecast. This reflects a smaller carryover from 2024, the impact of recent tariff announcements, an increase in gilt (government bond) yields, and weaker private consumption amid higher inflation as a result of regulated prices and energy costs. Consumer price index (CPI) inflation fell to 2.6% in March, down from February’s 2.8%, with recreation and culture, and motor fuels the main factor in the fall, according to the Office for National Statistics. On a monthly basis, CPI rose by 0.3% in March 2025 (0.6% in March 2024); core CPI rose by 3.4% in the 12 months to March 2025 (February 3.5%). On March 20, the Bank of England Monetary Policy Committee voted to maintain the policy rate at 4.5%. The seasonally adjusted S&P Global UK Manufacturing PMI fell to a 17-month low of 44.9 in March, down from 46.9 in February but slightly above the earlier flash estimate of 44.6. The PMI has now signaled a deterioration in overall operating conditions in each of the past six months. Rates of contraction in output and new orders accelerated, as the difficult operating environment persisted. Business confidence dropped to a near two-and a-half year low, amid concerns about government policy, rising costs, increased geopolitical tensions, and as potential tariff uncertainty weighed on both current and future expectations. |
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The S&P Global UK Services PMI registered 52.5 in March, up from 51.0 in February and the highest reading since August 2024. March data indicated that the rate of business activity expansion across the UK service economy gained further momentum. There were also reports of a gradual turnaround in demand conditions and a subsequent improvement in sales pipelines. However, employment remained a weak spot, with survey respondents mostly citing the impact of rising payroll costs.
The S&P Global UK Construction PMI posted 46.4 in March, up from a 57-month low of 44.6 in February but still well below the neutral 50.0 threshold. Lower volumes of construction output have now been recorded for three consecutive months and the latest reading signaled a persistent pace of contraction. UK construction companies indicated a sustained downturn in business activity, alongside pressure on margins from sharply rising input costs. Combined with a drop in new orders, this contributed to the fastest reduction in employment numbers for nearly four-and a-half years. For the period December 2024 to February 2025, growth in average total pay was 5.6%, while real total pay rose 1.9%. Unemployment was estimated at 4.4%. The UK economic inactivity rate (for people aged 16 to 64 years) was estimated at 21.4% over this period, below year-ago estimates, and down in the latest quarter. The estimated number of vacancies in Q1 2025 was 781,000, a decrease of 26,000 on the quarter. Vacancies declined for the 33rd consecutive period. On April 2, US President Donald Trump announced sweeping trade tariffs. On April 5, a 10% baseline tariff rate was applied to all countries, while the UK is also subject to a previously announced 25% tariff on steel and aluminum, in force since March 12. UK automakers will also face a flat 25% tariff. In response, Chancellor Rachel Reeves explored prospects for a US-UK trade agreement during a meeting with US Treasury secretary Scott Bessent on April 25. The UK has signaled it could cut tariffs on imports of some US products if it would encourage Washington to relent on the 25% tariff on cars. Meanwhile, UK and EU officials are exploring a “new strategic partnership” ahead of a summit on May 19. |
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In emerging economies, China records a stronger-than-expected growth in Q1; India cuts rates; inflation accelerates in Brazil.
China
China’s economy had a strong start in Q1, with GDP expanding by 5.4%, outperforming market expectations. Investment growth gathered pace and new credit increased. However, the real estate market softened, and trade growth decelerated. In the first quarter of 2025, China’s GDP recorded a stronger-than-expected growth rate of 5.4% year on year (market consensus was around 5.2%), in line with the pace of growth in Q4 2024. Consumption accounted for 51.7% of the GDP growth, trade for 39.5%, and investment for 8.7%. By sector, the industrial GDP growth sped up to 5.9% year on year from 5.2% in Q4 2024. However, the agriculture and services sectors’ GDP growth slowed to 3.5% and 5.3% year on year, respectively, from 3.7% and 5.8% in Q4 2024. In the first quarter, fixed-asset investment growth picked up to 4.2%, from 2.7% in Q4 2024. On a sectoral basis, manufacturing investment and infrastructure growth rates remained relatively stable at 9.1% and 5.8%, respectively, compared to 9.2% and 5.1% in Q4 2024. Meanwhile, the decline in real estate investment moderated to –10.0% from –14.0% in Q4 2024. In terms of ownership, state-owned enterprise (SOE) investment rose by 6.5% in Q1 2025, up from 4.6% in Q4 2024; private investment grew by 0.4%, up from 0.2% in Q4 2024. The real estate market weakened in the first quarter. On the demand side, sales revenue in new residential properties declined −0.9% in Q1 (+4.0% in Q4 2024). On the supply side, floor space started fell −23.9% in Q1 (−23.0% in Q4 2024). |
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In Q1, new credit increased to RMB 15.2 trillion, up from RMB 6.6 trillion in Q4 2024. On a year-on-year basis, it rose 18.5% in Q1. Meanwhile, total social financing reached RMB 423.0 trillion by March, marking an 8.4% year-on-year increase.
The overall surveyed urban unemployment rate decreased to 5.2% in March (5.4% in February). The youth unemployment rate inched down to 16.5% in March (16.9% in February). In the first quarter, cross-border trade witnessed a slowdown, registering a year-on-year growth rate of 0.2%, compared to 4.9% in Q4 2024. Specifically, exports growth decelerated to 5.8%, down from 10.0% in Q4 2024. However, exports staged a strong recovery in March, surging to a 12.4% increase from the −3.0% decline in February. Meanwhile, imports growth weakened to −7.0%, compared to −1.7% in Q4 2024. According to data released by the Ministry of Commerce, foreign direct investment (FDI) inflows into China fell by 11% in the first quarter compared with the year-ago period. On April 2, US President Trump announced a 10% universal tariff, with higher rates for many trading partners. Currently, the US imposes 145% tariffs on Chinese goods, and China imposes 125% tariffs on US goods. As of April 24, Trump said the final tariff rate with China would be significantly reduced from the current 145%. On April 11, the EU and China agreed to consider setting minimum prices for Chinese EVs instead of tariffs (up to 43.5%). |
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India
India’s economy in April 2025 shows resilience amid global challenges, with positive developments in manufacturing, inflation control, and monetary policy. However, concerns persist around household debt, external trade pressures, and the need for structural reforms to sustain growth. India’s private sector growth rose to an eight-month high in April fueled by robust demand, particularly a surge in foreign orders for manufactured goods, according to a survey. Manufacturing growth underpinned the strong performance, with the purchasing managers’ index (PMI) rising to 58.2 from 58.1—although this was below the flash estimate of 58.4, the PMI sits at a level not seen for over six months. The services PMI similarly indicated solid growth, edging up from 58.5 last month to 58.7 in April (but below the preliminary estimate of 59.1). India’s retail inflation slipped to a more-than-five-year low of 3.34% in March as food prices continued to moderate, creating room for deeper central bank rate cuts amid fears the US-China trade war may hit global growth. India’s merchandise trade deficit was wider than expected in March at $21.54 billion due to a sharp rise in oil and gold imports. March’s merchandise trade deficit rose from a more-than-three-year low of $14.05 billion in the previous month and $15.6 billion in the year-ago month. Both exports and imports were up. Government figures show March’s goods exports stood at $41.97 billion, while imports surged to $63.51 billion, compared with $36.91 billion of exports and $50.96 billion of imports in February. |
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The beginning of April saw a significant stock market crash amid US tariff announcements and the backlash from China. On April 7, in step with the global market crash, both the BSE Sensex and NSE Nifty 50 recorded one of their worst falls in the past four years. This was followed by a rally with the Sensex jumping up 6,400 points in the third week of April.
The 90-day pause on reciprocal tariffs and the US administration’s negotiations with trade partners have eased concerns over a trade war, leading to a market rally. India’s government announced that it is negotiating with the US and exploring solutions in the national interest. Reserve Bank of India governor Sanjay Malhotra announced on April 9 that the central bank expects to provide sufficient liquidity in the banking system to ensure that monetary policy transmission to lending and deposit rates happens in a timely manner. It is looking at a level of around 1% of deposits (2 trillion rupees, $23 billion), based on market estimates of deposits of about 250 trillion rupees. However, the surplus averaged around 1.66 trillion rupees in April and was in deficit over the previous four months. RBI changed its policy stance to “accommodative” from “neutral” and is actively involved in reviewing liquidity management framework. |
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Brazil
Inflation rose for the second consecutive month, while industrial production and services both declined; the unemployment rate edged up. Inflation accelerated to 5.48% in March, up from 4.83% in December, marking its second consecutive monthly increase and reaching its highest level since February 2023. The inflation rate remains above the Central Bank’s upper target limit of 4.50%. On March 19, the Banco Central do Brasil’s Monetary Policy Committee (Copom) followed through on its earlier guidance, raising the Selic rate from 13.25% to 14.25%. Copom signaled that a smaller adjustment is likely at its upcoming May meeting. Looking ahead, the committee emphasized that the extent of the tightening cycle will depend on inflation dynamics and the trajectory toward meeting the target. External uncertainty, particularly the next move by the US Federal Reserve, was also cited as a risk factor. In financial markets, the average monthly exchange rate was BRL 5.75 per US dollar in March (compared to BRL 5.76 in February), falling for the third time since its peak in December 2024. The Bovespa equities index rose in March, gaining 6.1% in value. Consumer confidence remained below the neutral 100 mark, falling to 84.6 in March (from 85.6 in February), its lowest level since February 2023—likely weighed down by elevated borrowing costs. Meanwhile, business confidence rose slightly to 93.7 (from 92.7 in February). |
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Brazil’s manufacturing industry continued to contract early in the year, with the Monthly Industrial Physical Production (PIM) Index declining from 94.9 in January to 93.7 in February. The drop was sharper in the extractive industry, which shrank by 6% during the period. The transformation industry contracted more modestly, falling by 0.5%.
The Monthly Services Survey (PMS) volume index declined to 113.5 in February (from 115.7 in January). This was mirrored in the revenues index, which dropped to 101 (from 102.7). The largest revenue decline occurred in the accommodation sector (down 28.8% since January), followed by air transportation (down 23%). Accommodation also saw the biggest volume decline (down 28.7%)—a seasonal drop following the year-end holidays. The March trade balance posted a surplus of US $8.1 billion, a sharp turnaround from the US $445 million deficit in February. The surplus was driven by a rise in exports (US $29.1 billion in March, up from US $22.8 billion in February) and a fall in imports (US $21 billion in March, down from US $23.2 billion in February). The three-month moving average unemployment rate rose slightly to 6.8% in February (from 6.5% in January), marking the third consecutive increase. Federal budget projections released on April 16 indicate that, by 2027, the central government will not have sufficient fiscal space to meet the constitutional minimum spending requirements for healthcare and education, due to limits imposed by the 2023 New Fiscal Framework (Novo Arcabouço Fiscal). In 2027, BRL 10.9 billion would be required to comply with constitutional provisions. By 2029, the projected deficit is expected to reach BRL 154.2 billion. |
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Russia
Slowdown in output confirmed for first two months of 2025; consumer demand stalled amid rising inflationary pressures; budget spending stabilized; indirect risks posed by US policies; forecasts see growth slowing in years ahead.
Russia’s economic development ministry estimates GDP growth in January–February at 2% year over year. Published sectoral data suggest this was driven by declines in mining (oil and gas) and stabilization in manufacturing after its December peak. Total output indicators declined by 3–4% compared to the Q4 2024 level. Consumer demand appears to be stalling as well, with the volume of retail sales essentially unchanged for nearly a year. Strong wage growth has persisted amid continued labor shortages and close to record-low unemployment. Nevetheless, high inflation at 10% year on year during January–March has eroded most of the gains in nominal wages and the purchasing power of consumers. The Central Bank of Russia (CBR) has maintained its key interest rate unchanged at a high level—21%. The bank acknowledges still-high inflationary pressures, which are, however, subsiding due to slowing domestic demand and currency appreciation. Consequently, the CBR board expects inflation to return to target only in 2026. A further rate increase in the meeting scheduled for April 25 has not been excluded, should conditions warrant. |
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Federal budget revenues grew by 4% year-to-date in Q1, with lower oil and gas earnings offset by rises in other categories. At the same time, expenditures have increased by 25%, with spending particularly strong in January and then moderating. This has resulted in a substantial increase in the federal budget deficit to 1% of GDP, a level that already significantly exceeds the assumption for the full year. The finance ministry noted that this development reflected the front-weighting of spending and expects the deficit to moderate as the year progresses.
The direct effect of tariffs announced by the US administration is expected to be small: no new tariffs were imposed on Russia. Moreover, the sanctions imposed in recent years have already diminished most trade between the countries, which were never major trading partners. However, there are indirect risks related to possible price declines in commodity markets and effects on China, Russia’s largest trading partner. The latest BOFIT and Oxford Economics forecasts see Russian GDP growth slowing significantly to 2% in 2025. Even if the government plans further fiscal expansion to boost the economy, it is already facing labor shortages and capacity constraints in industry. Domestic demand is expected to cool further due to high inflation and interest rates. In particular, prospects for private investment are limited by soaring borrowing and production costs. Nevertheless, despite slowing growth, Russia can continue to provide the funding for the production needed to continue the war effort. |
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Mexico
Inflation held steady at 3.8%; exports surged, driving a trade surplus despite weak domestic demand; new US tariffs deepened manufacturing contractions and heightened economic uncertainty. In March, annual inflation held steady at 3.8%. The Bank of Mexico lowered the benchmark interest rate by 50 basis points to 9.00%—its fifth cut in six months—in an effort to boost investment and counter signs of economic slowdown. On the currency markets, the peso appreciated slightly, with the average monthly exchange rate strengthening to MXN 20.2 per USD, from MXN 20.5 in February. The purchasing managers’ index (PMI) dropped to 46.5 in March from 47.6 in February, signaling the steepest decline in manufacturing sector conditions since January 2022. Weighed down by new US tariff announcements and client cashflow issues, new orders fell again in March—marking the ninth consecutive monthly decline and the most severe contraction in more than three years. In February, total unemployment was up slightly, by 0.04 percentage points to 2.65%. Meanwhile, formal employment rose by approximately 34,000 workers, with the largest gains seen in the agriculture and construction sectors. |
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In February, Mexico posted a trade surplus of $2.2 billion, as exports rose to $49.2 billion from $44.4 billion in January, while imports declined to $47.0 billion from $49.0 billion. The surplus was driven by strong growth in oil and non-automotive manufacturing exports, which offset a drop in automotive shipments. Non-oil manufacturing exports, excluding the automotive sector, grew by 10.5%, supported by gains in machinery, mining-metallurgy products, and professional equipment. On the import side, the broad-based decline reflected weaker domestic demand and a slowdown in investment.
On March 4, 2025, US President Donald Trump imposed a 25% tariff on Mexican imports, excluding USMCA-compliant goods, disrupting supply chains and raising costs for US manufacturers—especially in the automotive sector. To mitigate these effects, the US administration announced rebates for manufacturers assembling vehicles domestically and clarified that USMCA-compliant auto parts from Mexico and Canada are exempt from the new tariffs. In response, Mexico reinstated tariffs ranging from 5% to 50% on over 544 US goods, including steel products, effective for two years until April 2026. These measures aim to protect domestic industries and counterbalance the economic impact of US tariffs. The tariff exchange has fueled economic uncertainty, prompting the IMF to revise Mexico’s 2025 GDP forecast to a contraction estimated at –0.3%. In parallel, President Claudia Sheinbaum launched Plan México, a six-year strategy to boost industrial capacity and reduce import reliance. Key initiatives initiated this year include a $22 billion investment to upgrade the national electricity system and the expansion of the Port of Manzanillo to enhance trade infrastructure, aiming to make it Latin America’s busiest seaport. |
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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. 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 available free to email subscribers and through the
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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 Greater Boston office; and Sven Smit, a senior partner in the Amsterdam office. The authors wish to thank Nick de Cent, as well as José Álvares, Cristina Barrantes, Roman Büschgens, Darien Ghersinich, Yifei Liu, Marianthi Marouli, Tomasz Mataczynski, Frances Matamoros, Mario Rojas, Erik Rong, Vanshika Tandon, Valeria Valverde, and Sebastian Vargas for their contributions to this article. |
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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 of 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.
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