Executive Summary

Global economy shows resilience, but growth remains uneven across regions. The United States faces a government shutdown, China’s momentum continues to slow, and Europe contends with persistent political and fiscal turbulence. As the IMF says, global growth is around 3% but underlying data reveals a mixed picture. Central banks are cautiously pivoting toward easing, yet uncertainty surrounding trade dynamics, tariff policies, and the trajectory of AI markets continues to cloud the outlook. World leaders convened in Sharm el-Sheikh, Egypt, to sign the 2025 Gaza Peace Agreement.

A US federal government shutdown began on October 1 (and continues at the time of writing) following an impasse in which the Senate blocked a House stopgap funding bill and a Democrat alternative. Republicans want a funding extension until November 21, while Democrats are seeking to reverse healthcare cuts and extend tax credits for Affordable Care Act health plans set to expire at the end of 2025. Meanwhile, France is also facing economic turbulence with budgetary woes and an ongoing political crisis weighing on the economy, mainly through weakened business confidence. The unexpected resignation of Prime Minister Sébastien Lecornu on October 6 triggered fresh uncertainty. President Emmanuel Macron had appointed Lecornu on September 9, following the collapse of François Bayrou’s government after a failed confidence vote. Perhaps even more unexpectedly, Lecornu was reappointed by President Macron four days later. All eyes are now on whether Lecornu can hold a coalition together to pass next year’s budget. Amid the furor, France’s central bank has warned that the political uncertainty is damaging the country’s growth.

Overall, growth remains patchy. US second-quarter GDP growth was revised up to 3.8%, from an initial estimate of 3.0%. The upgrade reflects stronger consumer demand, with personal consumption expenditure rising 2.5%, up from the 1.6% initially reported. August saw economic activity in China soften somewhat. Industrial output growth declined to 5.2% year on year, compared with 5.7% in July. Manufacturing output continued to slow, dropping from a 6.2% expansion in July to 5.7% growth in August. Investment also shrank further in August, with overall fixed-asset investment registering a year-on-year contraction of –6.3%, a further decline from July’s –5.2%. In the eurozone, a second estimate confirmed second-quarter GDP growth of 0.1% quarter on quarter, down from 0.6% in the first quarter. Compared with the year-ago quarter, GDP rose by 1.4%. The slowdown was driven both by an unnaturally high base in the first quarter and broad-based weakness across eurozone members. In the UK, the economy maintained a steady pace of growth in September, with the monthly GDP estimate holding firm at 1.38%. Mexico’s economy grew 0.7% in the second quarter of 2025 compared with the first, exceeding market expectations. Year over year, GDP expanded by 1.2%. Looking ahead, September forecasts place Russia’s GDP growth at 0.9–1.5% this year and 0.8–1.3% in 2026. Continued moderate growth will be maintained mainly by private consumption supported by a strong labor market, and government spending, as has been the case this year.

At its September meeting, the Federal Reserve cut US interest rates by 25 basis points to 4–4.25%, the first reduction since 2024. Fed chair Jerome Powell framed it as risk management and judged that downside risks to employment have risen as economic activity moderated in the first half of the year. Similarly, the Bank of Mexico lowered its benchmark interest rate again In September, from 7.75% to 7.5%, as it sought to stimulate activity in the face of weak growth. Russia’s central bank also decided to reduce the key rate, by 100 basis points to 17% at its September 12 meeting, acknowledging that both demand and inflation were cooling.

Meanwhile, China moved to boost growth by rolling out a package of measures to augment services consumption on September 16, as part of broader efforts to spur domestic demand and unleash consumption potential. Initiatives focus on opening up areas such as culture, international sporting events, and the internet, together with expansion of pilot programs in healthcare, telecommunications, and education, alongside plans to encourage more overseas visitors to spend money in China.

Looking at consumer sentiment, OECD consumer confidence indicators recorded an improvement, mainly due to developments in the United States and United Kingdom. However, in the US, the Consumer Confidence Index (Conference Board) deteriorated by 1.3 points in August to 97.4, from a revised 98.7 in July, while UK consumer confidence reflects lingering concerns over the broader economic outlook. The eurozone’s Economic Sentiment Indicator (ESI), which combines consumer and business sentiment, dropped slightly, by 0.5, to 95.2 in August, surprising to the downside. In Brazil consumer confidence remained below the neutral 100 mark, with the seasonally adjusted August figure (from FGV) trending down at 86.2 (86.7 in July), while business confidence slid slightly to 88.2 (from 90.6 in July).

US consumption picked up but continues to decelerate in most other countries. August’s retail and food services sales in the US (adjusted for seasonal variation and holiday and trading-day differences) were $732.0 billion, up 0.6% from July’s revised $727.4 billion. In the UK, retail sales were up 0.7% year on year, indicating modest improvement in household spending.

Overall, inflation expectations remain well anchored at 2.4%, while a divergence between mid-term and long-term rates has reemerged—this was last seen in 2022. In August, US median inflation expectations ticked up to 3.2% (from 3.1%) at the one-year-ahead horizon; they were unchanged at 3.0% at the three-year-ahead horizon and 2.9% at the five-year-ahead horizon.

On the commodities markets, precious metals prices continue to skyrocket, driven mostly by gold, which surged in September. In contrast, industrial metals prices moved sideways. Energy prices have continued their downward trend as OPEC increased oil production and demand weakened. Food prices are gradually on the rise.

Consumer inflation accelerated in the US, while it remained broadly stable in the UK and eurozone. Elsewhere, China remains in the deflationary zone, while other emerging economies showed a deceleration in price growth. The US consumer price index (CPI) rose 2.9% for the 12 months ending August, after rising 2.7% over the 12 months ending July. Core inflation was slightly up, to 3.1% (annualized). In August, annual inflation in Mexico also inched up, to 3.6% from 3.5% in July. While broadly stable, short-term inflation expectations remain above the Bank of Mexico’s 3% target.

Various surveyed countries saw inflation decline. India’s headline consumer price inflation continued to slow, reaching 1.55% in July—a decline of 55 basis points versus June 2025 and the lowest inflation rate since June 2017. Inflation was also slightly down in Brazil, touching 5.13% in August, compared with 5.32% in July. However, it remains above the central bank’s upper target limit of 4.50%. Russia, where exceptionally high interest rates over many months have begun to affect demand and prices, saw consumer price inflation cooling to 8% year on year in August, from 9% the previous month.

Meanwhile, eurozone consumer inflation was steady at 2% year on year in August—this, alongside recent appreciation of the euro and subdued global energy prices, points to inflation likely dipping below the 2% target in the coming months. UK inflation dynamics remain mixed. The headline consumer price index (CPI) stood at 3.8% in August, little changed from prior months, while core inflation edged down from 3.7% to 3.6%.

Globally, business saw a rebound in the manufacturing purchasing managers’ index (PMI) with a return to growth, while the services sector expansion continued to pick up pace. In the eurozone, the composite PMI for August reached 51.2, marking a fourth consecutive monthly increase. This reading signaled the fastest, though still subdued, expansion in private-sector activity since May 2024.

Among individual economies, the US industrial production index declined to 103.9 in August; September’s manufacturing PMI fell to 52.0 from August’s 53.0. The HSBC India Manufacturing PMI rose to 59.8 in August from 59.1 in July, its highest reading since January 2008. This mainly reflects increased domestic spending. Brazil’s manufacturing industry has been uneven this year: however, the Monthly Industrial Physical Production (PIM) Index increased from 103.8 in June to 112.1 in July (versus the neutral 100 line taken from the 2022 average). The increase was driven by buoyant factory production, which boomed 8.7%; meanwhile, the extractive industry was up 4.5%.

The latest picture for services varies across economies. The US services PMI fell slightly to 53.9 (54.5 in August). In contrast, India’s services PMI soared to a survey-record high of 65.6 in August, up from 60.5 the previous month. Brazil’s Monthly Services Survey (PMS) revenue index also climbed, to 126.6 in July from 121.7 in June (versus the neutral 100 line). This was mirrored in the volume index, which rose to 111.5 (from 108.4).

Looking at labor market dynamics among the developed economies, US stats for September have not been published (an unlooked-for consequence of the federal shutdown). The latest figures are from August when total nonfarm payroll employment was up 22,000 on July, while the unemployment rate ticked up to 4.3% (from 4.2%). The UK’s labor market remains resilient but is showing signs of rebalancing. The unemployment rate stabilized at 4.7% for the quarter May–July, while employment growth of around 2% year on year marks one of the strongest expansions since 2000. However, this growth is far from uniform: self-employment has yet to recover to pre-pandemic levels, pointing to structural shifts in the labor force.

Among the emerging economies, China’s overall surveyed urban unemployment rate edged up to 5.3% in August (5.2% in July). The youth unemployment rate continued to rise—to 18.9% in August (17.8% in July)—due to seasonal factors related to the graduation cycle. In Brazil, the three-month moving average unemployment rate fell to 5.6% in July (from 5.8 % in June), down for a third consecutive month. In Mexico things went the other way, with formal employment registering a sharp monthly loss of 1.1 million jobs between July and August.

Regional and Country Summary

US Q2 GDP growth revised up to 3.8%; Fed cuts rates by 25 basis points; Eurozone shows lackluster growth; UK Inflation remains elevated at 3.8%.

United States

US Q2 GDP growth revised up to 3.8%; Federal Reserve cuts rates by 25 basis points for the first time in 2025; federal government enters shutdown.

US second-quarter GDP growth was revised up to 3.8%, from an initial estimate of 3.0%. The upgrade reflects stronger consumer demand, with personal consumption expenditure rising 2.5%, up from the 1.6% initially reported.

At its September meeting, the Federal Reserve cut rates by 25 basis points to 4–4.25%, the first reduction since 2024. Fed chair Jerome Powell framed it as risk management and judged that downside risks to employment have risen as economic activity moderated in the first half of the year.

The consumer price index (CPI) rose 2.9% for the 12 months ending August, after rising 2.7% over the 12 months ending July. Core inflation was slightly up, to 3.1% (annualized). In August, median inflation expectations ticked up to 3.2% (from 3.1%) at the one-year-ahead horizon; they were unchanged at 3.0% at the three-year-ahead horizon and 2.9% at the five-year-ahead horizon.

On the housing market, the 30-year fixed-rate mortgage decreased slightly to 6.4%. Existing home sales fell by 0.2% in August, while housing residential starts decreased to 1,307,000 (below the revised July estimate of 1,429,000), an 8.5% drop. Completions in August were up—to 1,608,000—an 8.4% increase from a revised June estimate of 1,483,000.

The industrial production index declined to 103.9 in August. September’s manufacturing purchasing managers’ index (PMI) fell to 52.0 from August’s 53.0; the services PMI fell slightly to 53.9 (54.5 in August).

July exports reached $280.5 billion, $0.8 billion more than in June. July imports were also up, at $358.8 billion, $20.0 billion more than recorded in June. The monthly deficit increased by 32.5% to $78.3 billion.

August’s retail and food services sales (adjusted for seasonal variation and holiday and trading-day differences) were $732.0 billion, up 0.6% from July’s revised $727.4 billion. The Consumer Confidence Index (Conference Board) deteriorated by 1.3 points in August to 97.4, from a revised 98.7 in July.

On the equities markets in August, the S&P 500 was up 1.9%, bringing the one-year return to 9.8%. The Dow Jones gained 3.2% over the month and was up 7.1% year to date. During August, the CBOE Volatility Index averaged 15.8 (16.4 in July).

Total nonfarm payroll employment changed little in August (+22,000) and has shown little change since April. The unemployment rate ticked up to 4.3%.

A US federal government shutdown began on October 1 following an impasse in which the Senate blocked a House stopgap funding bill and a Democrat alternative. Republicans want a funding extension until November 21; meanwhile, Democrats are seeking to reverse healthcare cuts and extend tax credits for Affordable Care Act health plans set to expire at the end of 2025.

Starting October 1, the US imposed tariffs on imports of selected products: 100% on patented drugs, 25% on heavy-duty trucks, 50% on cabinets/vanities, and 30% on upholstered furniture. Caps previously agreed with the European Union and Japan will apply.

Eurozone

Economy shows lackluster growth amid weaker global demand; recent data present mixed signals for near-term growth, affected by uncertainty; inflation remains on target and ECB holds interest rates.

A second estimate confirmed Q2 GDP growth of 0.1% quarter on quarter, down from 0.6% in Q1. Compared with the year-ago quarter, GDP rose by 1.4%. The slowdown was driven both by an unnaturally high base in Q1 and broad-based weakness across eurozone members. After the frontloading of exports in the early months of 2025, net trade was a drag on growth in Q2, as was fixed investment. Meanwhile, private consumption slowed. Germany and Italy saw contraction, while Spain showed robust dynamism.

The two main eurozone sentiment surveys have proffered mixed signals. The Economic Sentiment Indicator dropped slightly, by 0.5, to 95.2 in August, surprising to the downside. Conversely, the final Purchasing Managers’ Index (PMI) confirmed positive momentum, with the composite PMI at 51.2—marking a fourth consecutive monthly increase. The reading signaled the fastest, though still subdued, expansion in private-sector activity since May 2024. The trade agreement with the US has reduced some of the uncertainty and should support a moderate improvement in activity next year. Still, the immediate outlook will continue to be shaped by weak growth in exports and investment discouraged by US tariffs. Consequently, eurozone growth will rely on consumers, supported by strong labor markets and rising real incomes underpinning the outlook for household spending.

Consumer inflation in August stayed at 2% year on year. This, alongside recent appreciation of the euro and subdued global energy prices, points to inflation likely dipping below the 2% target in the coming months. In September, the European Central Bank (ECB) kept its key interest rate unchanged at 2.0%, down from a 4.0% peak. Its decision was in line with expectations as ECB staff acknowledged inflation stabilizing, with the outlook broadly unchanged and balanced risks, mostly around trade policy volatility. The hawkish tone of the official communication, pointing to the transitory nature of recent declines, mostly driven by energy prices, likely excluded further interest rates cuts before year-end.

President Macron chose Sébastien Lecornu as France’s new prime minister, after François Bayrou’s government collapsed in a failed confidence vote. However, Lecornu unexpectedly resigned on October 6… only to be reappointed four days later. The ongoing political crisis has been weighing on the economy, mainly through weakened business confidence: French investment has been more subdued than the eurozone average and, along with Germany, been showing the weakest trend among the four largest eurozone economies.

United Kingdom

UK economy held steady in September, with GDP growth stabilizing at 1.38%; inflation remained elevated at 3.8%, adding to concerns about household finances; Bank of England held interest rates at 4%.

The UK economy maintained a steady pace of growth in September, with the monthly GDP estimate holding firm at 1.38%. Beneath the surface, however, the picture varies: while construction and services activity gained modest momentum, manufacturing continued to cool. The stabilization of overall output thus masks growing divergence across sectors, as the industrial sector struggles to regain traction amid subdued global demand and persistent cost pressures.

Industrial production was broadly unchanged in July, extending a downward trend that has brought output back to levels last seen in 2015. This structural softness in the manufacturing base reflects weak external demand and high borrowing costs, both of which have weighed on investment and export-oriented industries. In contrast, construction saw a moderate rebound, driven by ongoing infrastructure and renovation projects, while services continued to support growth, buoyed by steady consumer-facing activity.

Inflation dynamics remain mixed. The headline consumer price index (CPI) stood at 3.8% in August, little changed from prior months, while core inflation edged down from 3.7% to 3.6%. A closer look at the data shows that the disinflation process is uneven—prices of food, alcohol, furniture, and restaurant services have continued to rise, offset in part by easing costs in the health and transport categories. The persistence of certain inflationary components underscores the delicate balance the Bank of England (BoE) must strike as it aims to consolidate disinflation without stalling activity.

Financial conditions have tightened further. The BoE kept its policy rate unchanged at 4% in September, following the August cut, maintaining a cautious stance as it monitors the pace of disinflation. Yet, despite the unchanged policy rate, government bond yields have continued to climb, reaching around 4% (short-term), 4.7% (medium-term), and 5.2% (long-term). This steepening of the yield curve marks the highest medium- and long-term yields in nearly 25 years, reflecting shifting investor expectations and higher term premiums. Meanwhile, equity markets lost momentum after a strong August, with the FTSE index up just 0.4% month on month, suggesting a pause amid rising bond yields and global volatility.

The labor market remains resilient but is showing signs of rebalancing. The unemployment rate stabilized at 4.7% for the quarter May–July, while employment growth of around 2% year on year marks one of the strongest expansions since 2000. However, this growth is far from uniform: self-employment has yet to recover to pre-pandemic levels, pointing to structural shifts in the labor force. The economic inactivity rate (ages 16 to 64) was down to 21.1% but remains above pre-pandemic rates. Encouragingly, youth unemployment (ages 18–24) has been improving, reaching 11.6% in July. Wage pressures continue to be elevated, with average pay rising 4.8% over the year, suggesting that real income recovery is ongoing but fragile.

On the consumer side, the picture is equally mixed. Retail sales were up 0.7% year on year, indicating modest improvement in household spending. Yet, consumer confidence remains subdued, reflecting lingering concerns over the broader economic outlook. While many households expect gradual improvement in their personal financial situation, caution persists: big-ticket purchases are being postponed, and savings rates remain elevated.

The trade balance deteriorated further in September, as imports increased while exports failed to grow. The largest imbalances were recorded in food and finished manufacturing goods, reinforcing concerns over the competitiveness of UK exporters and exposure to global cost shocks.

China experiences moderate slowdown; strong domestic demand helps fuel India economy; Mexico trade balance slips into deficit.

China

In August, China’s economic activities experienced a moderate slowdown; growth rates decelerated across industrial production, investment, retail sales, and trade.

China’s industrial output growth softened to 5.2% year on year in August, compared with 5.7% in July. Sector-wise, manufacturing output continued to slow, dropping from a 6.2% expansion in July to 5.7% growth in August. The mining sector’s output growth stabilized at 5.1%, 0.1% up from July. Meanwhile, the utility sector’s output growth dropped to 2.4%, compared with 3.3% in July.

Investment shrank further in August. Overall fixed-asset investment registered a year-on-year contraction of –6.3% in August, a further decline from July’s –5.2%. Contractions happened across sectors: manufacturing investment growth dropped to –1.3% in August, from July’s –0.3%. Infrastructure investment growth slowed as well, registering –5.9% in August (versus –5.1% in July). Real estate investment continued to weaken significantly with a −19.0% contraction (–18.4% in July).

The real estate market continued to experience a downturn in August. On the demand side, floor space sold for new residential properties recorded a −10.0% decline year on year, accelerating from –8.1% in July. On the supply side, the contraction in floor space started increased significantly to −19.0% year on year in August, from –8.7% in July.

In August, new credit increased to RMB 2.6 trillion, up from RMB 1.1 trillion in July. Meanwhile, total social financing reached RMB 433.7 trillion in August, marking an 8.8% year-on-year increase, which was almost in line with the growth observed in July (9.0%).

The overall surveyed urban unemployment rate edged up to 5.3% in August (5.2% in July). The youth unemployment rate continued to rise, to 18.9% in August (17.8% in July), due to seasonal factors related to the graduation cycle.

In August, cross-border trade experienced a year-on-year growth rate of 3.1%, down from the 5.9% increase seen the previous month. Specifically, export growth declined to 4.4% in August, from 7.2% in July. Meanwhile, import growth also witnessed a deceleration to 1.3% from July’s 4.1%.

On September 16, Chinese authorities rolled out a package of measures to augment services consumption, as part of broader efforts to spur domestic demand and unleash consumption potential. Initiatives focus on the orderly opening up of areas such as culture, international sporting events, and the internet. Jointly released by nine government agencies—including the commerce ministry, finance ministry, and the People’s Bank of China—measures include expanding pilot programs in healthcare, telecommunications and education. At the same time, the programs are also seeking to encourage more overseas visitors to spend money in China.

India

Fueled by strong domestic demand, cooling inflation, vibrant capital markets, and rising exports, India’s economy reflects both resilience and equilibrium. However, external headwinds, including trade uncertainties, and bouts of financial market volatility persist.

Headline consumer price inflation continued to slow, reaching 1.55% in July—a decline of 55 basis points versus June 2025 and the lowest inflation rate since June 2017. Food prices deflated by 1.76% (the lowest since January 2019) with rural areas seeing a 1.74% fall and urban areas a 1.90% drop. Compared to June 2025, food inflation was down by 75 basis points, meaning prices fell faster in July. This sustained decline is keeping inflation well below the Reserve Bank of India’s (RBI) 4% target, strengthening the case for potential rate cuts and signaling improved price stability for consumers.

The HSBC India Manufacturing PMI rose to 59.8 in August from 59.1 in July, its highest reading since January 2008. This mainly reflects increased domestic spending. The services PMI also soared to a survey-record high of 65.6 in August, up from 60.5 the previous month.

India’s infrastructure output grew just 2.0% year on year in July 2025, a two-month low. Crude oil and natural gas saw declines of 1.3% and 3.2% respectively, while coal production plunged by 12.3%. Petroleum refinery products also slipped, by 1.0%. Meanwhile, fertilizers grew 2.0%, while cement and steel expanded strongly at 11.7% and 12.8% respectively, and electricity generation rose 0.5%. This is a slight drop from June’s revised 2.2% growth, reflecting a broad-based slowdown in the core energy sectors.

India’s financial markets witnessed some turbulence. Growth was largely driven by domestic investor participation and oscillations occurred in response to global cues—including US interest rate expectations and tariff news. The benchmark indexes ended August slightly higher than July. Market performance was uneven across sectors. Earlier in the month, domestic-focused sectors such as consumer durables and pharmaceuticals had outperformed, while export-oriented technology stocks lagged amid global growth worries. However, in late August, a wave of optimism, spurred by indications of a possible US Fed rate cut, lifted the markets broadly.

India’s merchandise trade deficit widened to an eight-month high of $27.35 billion in July 2025, up from $20.7 billion in June, owing to a surge in oil and electronic goods imports. Exports held up ahead of US tariffs set to take effect in late August, while imports surged, driven by higher demand for petroleum and crude products, electronic goods, and machinery.

The RBI adopted a “dovish pause” at its August meeting, with the Monetary Policy Committee (MPC) holding the policy repo rate steady at 5.5%. The move allows the RBI to assess the impact of previous rate cuts and the significant uncertainty arising from new US tariffs before committing to further action. Liquidity is expected to remain easy, aided by a planned Cash Reserve Ratio (CRR) cut in September.

Brazil

Falling inflation and improving job market, but monetary policy remains hawkish.

On September 16, the Banco Central do Brasil’s Monetary Policy Committee (Copom) kept the Selic rate at 15% in a unanimous decision. Copom emphasized that the current level will be maintained “for a rather long period,” as the current scenario, with increased uncertainty, demands caution in conducting monetary policy. The hawkish tone indicated that the central bank would “not hesitate in rerunning the adjustment cycle if it is appropriate.”

Inflation was slightly down, touching 5.13% in August, compared with 5.32% in July. Inflation remains above the central bank’s upper target limit of 4.50%.

The three-month moving average unemployment rate fell to 5.6% in July (from 5.8 % in June), down for a third consecutive month.

On the financial markets, the average monthly real–US dollar exchange rate was BRL 5.45 per USD in August (versus BRL 5.53 in July). The Bovespa equities index boomed in August, rising 6.2% in value; this month saw further expansion with the market already positive (as of September 24) and registering gains of 3.5%.

Consumer confidence remained below the neutral 100 mark, with the seasonally adjusted August figure (from FGV) trending down at 86.2 (86.7 in July). Business confidence slid slightly to 88.2 (from 90.6 in July).

Brazil’s manufacturing industry has been uneven this year: however, the Monthly Industrial Physical Production (PIM) Index increased from 103.8 in June to 112.1 in July (versus the neutral 100 line taken from the 2022 average). The increase was driven by buoyant factory production, which boomed 8.7%; meanwhile, the extractive industry was up 4.5%.

The Monthly Services Survey (PMS) revenue index climbed to 126.6 in July, from 121.7 in June (versus the neutral 100 line). This was mirrored in the volume index, which rose to 111.5 (from 108.4). By sector, the largest revenue increase was in accommodations (up 29% since June), followed by air transportation services (up 19.6%). In terms of volume, the accommodation sector was up 28.4%, but air transportation services registered a drop of 1%. The notable negative was in the audiovisual segment, which recorded a revenue drop of 2.1% accompanied by a volume decrease of 1.7%.

September’s trade balance (aggregate up to the third week of the month) recorded a surplus of US $2.8 billion, according to preliminary data, down from US $6.1 billion in August. The lower surplus was driven by a reduction in exports (US $19.9 billion in September, down from US $29.8 billion in August) accompanied by a drop in imports (US $17.5 billion in September, down from US $23.7 billion in July).

On September 11, Brazil’s Supreme Court found former president Jair Bolsonaro guilty of plotting a coup d’état, sentencing him to over 27 years in jail. More recently, US President Donald Trump noted during his recent United Nations address that he agreed to meet Brazil’s president Lula to negotiate issues between the two nations. So far, however, Brazil hasn’t agreed on a date and is initially open only to a telephone call.

Russia

Russia’s output has flatlined, reflecting lag effect of tight monetary policy; inflation has slowed gradually, allowing some monetary easing; modest growth expected in coming months amid multiple risks; fiscal expansion has continued.

Russia’s economy confirmed a slowdown in July—the composite output index growing by just 0.2% year on year (from 1.3% in June). Output has largely been supported by consumption, with retail trade realizing a solid 2.0% growth, supported by a continuously strong labor market. Unemployment has remained at historically low levels and wages continued to rise. In contrast, industrial output has nearly stagnated, except for sectors linked to the war effort.

The slowdown is also visible in the overall results of the corporate sector. Growth in fixed investments slowed to 1.5% year on year in the second quarter, reflecting weak demand outlook and more difficult access to financing as corporate loan rates have sharply increased. Overall profitability of Russian firms decreased by 9% year on year in the first half of the year, with roughly 30% of firms showing losses.

Exceptionally high interest rates over many months have begun to affect demand and prices, with consumer price inflation in August cooling to 8% year on year, from 9% the previous month. Policymakers need to balance loose fiscal policy supporting demand with the tight monetary stance required to curb inflation. Tight monetary policy in recent months helped to moderate some imbalances, but provoked criticism due to a perceived contribution to stagnation. At September’s meeting, the central bank decided to reduce the key rate by 100 basis points to 17%, acknowledging that both demand and inflation were cooling. However, it also noted a recent acceleration in lending, high inflation expectations, and risks from further weakening of the ruble or uncertainty over budget plans.

September forecasts place Russia’s GDP growth at 0.9–1.5% this year and 0.8–1.3% in 2026. Continued moderate growth will be maintained mainly by private consumption supported by a strong labor market, and government spending, as has been the case this year. However, there is a risk of prioritizing military expenditure over social spending. Export volumes will suffer from sanctions and weaker global demand.

Preliminary figures indicate that federal budget revenues increased by 3% year on year in the first eight months of this year, while spending rose by 21%. As a consequence, the federal budget deficit hit 2% of GDP. The finance ministry has proposed a revision to the budget framework to accommodate a larger budget deficit than previously projected, which could even reach 2.6% of GDP. Also, the ministry has proposed an increase in value-added tax rates next year to cover increased defense spending.

Mexico

Inflation edged higher and growth remained modest; the peso held steady, but trade slipped into deficit.

In August, annual inflation in Mexico inched up to 3.6%, from 3.5% in July. While broadly stable, short-term inflation expectations remain above the Bank of Mexico’s 3% target. On the currency front, the peso held steady against the US dollar, averaging 18.7 per dollar through July and August.

The Mexican economy grew 0.7% in the second quarter of 2025 compared with the first, exceeding market expectations. Year over year, GDP expanded by 1.2%. In September, the Bank of Mexico lowered its benchmark interest rate once again, from 7.75% to 7.5%, following a split vote. The move aims to stimulate activity in the face of weak growth, supported by controlled inflation and a stable currency.

The S&P Global Mexico Manufacturing Purchasing Managers’ Index (PMI) climbed above the neutral 50.0 threshold for the first time in 14 months, rising from 49.1 in July to 50.2 in August. The reading points to only a slight improvement in business conditions, driven by a modest rebound in new orders after 13 consecutive months of decline.

On the labor market, formal employment registered a sharp monthly loss of 1.1 million jobs between July and August.

In August, the Índice de Precios y Cotizaciones (IPC), the main benchmark stock index of the Mexican Stock Exchange, increased by about 1.5% month on month, reflecting moderate equity gains.

Mexico recorded a trade deficit of US $1.9 billion in August, as exports fell to US $55.7 billion (down from US $56.7 billion in July), while imports rose to US $57.7 billion (up from US $56.7 billion). The widening deficit reflected a reduction in the surplus of non-petroleum trade and a deeper deficit in petroleum products.

On the trade policy front, Mexico’s proposed tariff package for more than 1,400 imported products—mainly from countries without free trade agreements—was included in the 2026 Economic Package submitted to Congress on September 8, 2025. The plan sets tariffs of 10% to 50% but remains a legislative proposal pending approval.

China’s Ministry of Commerce launched a formal investigation into Mexico’s proposed tariff package, citing potential impacts on Chinese exports such as cars, textiles, and toys. Simultaneously, it opened an anti-dumping probe on pecan imports from Mexico and the US. Mexico maintains its tariff plan is WTO-compliant, applying only to countries without free-trade agreements and aimed at supporting domestic industry.

In recent months, US-Mexico relations have been marked by trade and security tensions. The United States’ threatened 30% tariffs on Mexican imports were suspended for 90 days at the beginning of August and are now under review as part of ongoing talks. Meanwhile, both governments have launched a joint security initiative to strengthen cooperation against cross-border arms trafficking and organized crime.

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 McKinsey Insights App. To add a name to our subscriber list, click here. GEI is a joint project of McKinsey’s Strategy and Corporate Finance Practice and the McKinsey Global Institute.

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, Roman Büschgens, Darien Ghersinich, Gabriel Marini, Marianthi Marouli, Tomasz Mataczynski, Frances Matamoros, Alejandro Morales, Beatriz Oliveira, Erik Rong, Vanshika Tandon, Valeria Valverde, and Sebastian Vargas 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 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.