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Executive Summary
Overall economic volatility has subsided, but consumer confidence continues to deteriorate. Inflation is decelerating across most countries; however, demand remains fragile, as indicated by recent PMI readings. Meanwhile, in the U.S., President Trump signed the 'One Big Beautiful Bill' on July 4, after it passed through both the Senate and the House of Representatives.
Following a lengthy legislative process, Donald Trump secured passage of the 'One Big Beautiful Bill,' which he signed into law on July 4. On the trade front, the U.S. concluded a bilateral agreement with Vietnam, averting the imposition of higher tariffs and establishing new tariff terms. For other countries, the administration issued formal notifications outlining new tariffs, set to take effect on August 1, with rates varying by country. Importantly, the negotiations window remains open until that date. Businesses await the outcome with some trepidation and are keeping a close watch on potential trade disruption. Indeed, the perceived risk from shifts in trade continues to grow, according to the results from the latest McKinsey Global Survey on economic conditions. Respondents cite changes in trade policy or relationships as the top growth disruptor in the global economy, their home economies, and for their companies. Interestingly, the survey found that responding to changes in trade dynamics isn’t the priority focus among business leaders in any industry. The largest group of respondents points to leaders prioritizing AI investments, while they more commonly report skills gaps and weak demand as high priorities than responding to changing trade policies. At the same time, respondents’ long-standing focus on inflation is fading. Trade disruption, coupled with decelerating inflation, led several central banks to reduce interest rates in June—but by varying amounts. On June 6, the Reserve Bank of India (RBI) and the Central Bank of the Russian Federation both cut rates: the RBI reduced the repo rate by 50 basis points, from 6.00% to 5.50%, while Russia’s central bank went further, slashing rates by 100 basis points to 20.00%. Then, on June 11, the European Central Bank (ECB) cut rates by 25 basis points. On June 26, Mexico’s central bank, Banxico lowered its benchmark interest rate to 8.0%, following a 50 basis points cut to 8.5% in mid-May—this despite inflation remaining elevated. Among surveyed economies, only Brazil raised rates: on June 18, the Banco Central do Brasil’s Monetary Policy Committee (Copom) hiked the Selic rate from 14.75% to 15% in a unanimous decision. Meanwhile, in the United States, the US Federal Reserve again kept interest rates unchanged this month, in the range 4.25–4.5%, where they have been since January. The People’s Bank of China (PBOC) held rates following a ten-basis-points reduction to the loan prime rate in May. Similarly, the Bank of England Monetary Policy Committee voted to maintain the policy rate at 4.25% on June 19. Momentum in developed economies has largely risen; among emerging markets, only China shows signs of improvement. In the first quarter of 2025, the euro area economy expanded by 0.6% quarter on quarter, exceeding earlier estimates of 0.4% and indicating improvement in the eurozone economic environment. This acceleration was primarily driven by gains in household consumption (+0.2 pp), investment (+0.4 pp), and a positive net trade contribution (+0.3 pp). By early Q2 2025, eurozone growth appears more modest, likely around 0.3–0.4%. According to the OECD’s June Economic Outlook, UK GDP growth is projected to reach 1.3% in 2025 before slowing to 1.0% in 2026, dampened by heightened trade tensions, tighter financial conditions, and elevated uncertainty on business sentiment and consumer confidence. China’s industrial output growth softened to 5.8% year on year in May, compared to the 6.1% seen in April. By sector, manufacturing output remained resilient at 6.2% growth, though dropping from 6.6% expansion in April. The mining sector’s output growth was stable at 5.7%, the same level as April. Meanwhile, the utility sector’s output growth reached 2.2%, compared to 2.1% in April. Preliminary GDP growth estimates have been revised down to 1.4% year on year in the first quarter (from 1.7%). This translates into a sequential contraction of 1.2% and puts Russia’s economy on the brink of recession. Consumer confidence has dropped significantly in recent months, according to OECD indicators. Nevertheless, in the United States, the consumer confidence index (Conference Board) rose by 12.3 points to 98.0 in May after five consecutive months of decline (85.7 in April). In contrast, consumer confidence in Brazil remained below the neutral 100 mark, with the seasonally adjusted May figure (from FGV) trending up at 84.0 (81.1 in April). Consumer confidence also improved in Mexico, rising by 0.23 points to 104.1, the first increase after six months of decline. Despite patchy consumer confidence, spending remains robust, albeit that there are signs of stress in some discretionary categories. In the United States, May’s retail and food services sales (adjusted for seasonal variation and holiday and trading-day differences) were $715.4 billion: down 0.9% from April’s revised $722.0 billion. In the first quarter of 2025, expansion in the euro area economy of 0.6% quarter on quarter, was partly driven by gains in household consumption (+0.2 percentage points). |
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Inflation expectations have been volatile and have also increased somewhat but they continue to oscillate around 2.4% over the medium and long term. In the United States, one-year-ahead inflation expectations declined by 0.4 percentage points to 3.2% in May, three-year-ahead inflation expectations were down by 0.2 pp to 3.0%, and five-year-ahead inflation expectations edged down by 0.1 pp to 2.6%.
Looking at the commodities markets, we see that prices of precious metals have soared, given geopolitical tensions and persistent inflation concerns, although gold price momentum has eased somewhat. Copper prices have also risen, driven by demand-supply imbalances; other industrial metals have been flat. Oil prices edged up to $66 a barrel as tensions around Iran escalated and concerns grew over the potential impact on the oil market. Meanwhile, livestock prices have also edged higher, although food prices more generally eased slightly, mostly due to improved harvests from India and Brazil—they now sit some 23% above pre-pandemic levels. In general, central banks have managed to keep headline inflation broadly contained, although it remains above target in several cases; meanwhile, core inflation remains persistently elevated. Notably, inflation in Russia and Brazil has started to ease, while China continues to struggle with deflation. Among the advanced economies, the US consumer price index (CPI) rose 2.4% for the 12 months ending May, after rising 2.3% over the 12 months ending April. Core inflation increased slightly to 2.8% (annualized). In May, one-year-ahead inflation expectations declined by 0.4 percentage points to 3.2%, three-year-ahead inflation expectations declined by 0.2 percentage points to 3.0%, and five-year-ahead inflation expectations declined by 0.1 percentage points to 2.6%. In the eurozone, May headline inflation hit 1.9% (core 2.5%, services 3.2%), and producer prices fell 2.2% month on month in April. In the UK, CPI inflation dropped to 3.4% in May, from April’s 3.5%. The slight decrease was largely the result of transport costs, partially offset by food, furniture, and household goods. On a monthly basis, CPI rose by 0.2% in May 2025 (0.3% in May 2024); core CPI rose by 3.5% in the 12 months to May 2025 (March 3.8%). Among the emerging economies, India’s headline consumer inflation rate dropped sharply to 2.82% in May, from 3.16% in April, reaching its lowest level since February 2019. The fall was the result of a significant decline in food prices and a favorable base effect. Inflation was slightly down in Brazil, touching 5.32% in May, compared with 5.53% in April. This ended a three-month rising trend that led to the highest level of inflation since February 2023. However, inflation remains above the central bank’s upper target limit of 4.50%. Headline inflation has peaked in Russia, but recent readings have remained around 10% annually—still well above the target of 4%. Month-on-month inflation shows signs of a gradual slowdown. May saw annual inflation in Mexico rise to 4.4%, up from 3.9% in April. Mexico’s central bank, Banxico aims to gradually return inflation to its 3% target by the third quarter of 2026. Manufacturing slipped deeper into contraction while services retained some momentum, according to global purchasing managers’ indexes (PMIs). In May, the manufacturing sector gave off mixed signals, with executives reporting declining demand and prices. In contrast, services have continued to expand across the board, with a few minor exceptions. Taking a closer look at individual country indicators, the US industrial production index was slightly down at 103.5 in May, while the manufacturing PMI rose to 52.0 from 50.2 in April. In the eurozone, industrial production fell by 2.4% month on month in April but remained up 0.8% year on year. The decline may have been driven by weak demand from major trade partners (China and the United States) and continuing energy price volatility in some eurozone countries. May’s PMI data reflect stagnation in overall activity, potentially linked to the current climate of uncertainty: the composite PMI held steady at 50.4 while the manufacturing PMI remained at 51.5. The seasonally adjusted S&P Global UK Manufacturing PMI rose to a three-month high of 46.4 in May, up from 45.4 in April and above the earlier flash estimate of 45.1. The PMI nonetheless has signaled a deterioration in operating performance in each of the past eight months. A combination of weak global demand, turbulent trading conditions, and rising costs led to reduced levels of output, new orders, new exports, and employment. Looking at indicators for the emerging economies, the HSBC Flash India Composite Output Index climbed to a 14-month high of 61.0 in June, up from 59.3 in May. This rally is mainly attributed to scaled-up output by Indian companies in response to faster increases in total new business intakes and international sales. Notably, the upturn in export orders was the strongest since comparable data became available in September 2014. Manufacturing gained pace, with the PMI climbing to 58.4 in June from May’s 57.6. Brazil’s manufacturing industry continued to contract early in the year, despite the Monthly Industrial Physical Production (PIM) Index remaining steady, edging down from 99.6 in March to 99.4 in April (versus the neutral 100 line from January 2022). This was the result of a dip in the extractive industry, which went down by 2.3% during the period, while factory production increased moderately, rising only 0.2%. In Mexico, the manufacturing PMI rose slightly from April’s 50-month low of 44.8 to 46.7 in May; however, the indicator still points to a firm deterioration in business conditions. The sector faced another challenging month, with sharp declines in new orders—especially from export markets—leading to reduced production, lower purchasing activity (the steepest drop since December 2020), and continued cuts to inventories and employment. |
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The picture for services varies across countries. In the United States, the services PMI increased to 53.7 (50.8 in April), while in the eurozone it declined to 49.7. Meanwhile, UK service providers experienced a marginal downturn in business activity during April, ending a 17-month period of expansion. This largely reflected a renewed downturn in order books, and the fastest decline in export sales since February 2021. At 49.0 in April, down from 52.5 in March, the headline seasonally adjusted UK Services PMI was at its lowest since January 2023. The latest reading signaled a marginal decline in overall output, which contrasted with modest growth in the first quarter of 2025.
With tariff uncertainty the current new normal, a “
great trade rearrangement” is poised to take place. Accordingly, US imports may shift to countries that face lower tariffs and historically have been more geopolitically aligned with the United States. Alternatively, firms could
reduce purchases,
replace imported products with similar goods, or
ramp up domestic production.
Among emerging economies, India’s services sector was buoyant with the activity index rising to 60.7 from May’s 58.8—the strongest since August last year. In Brazil, the Monthly Services Survey (PMS) volume index decreased to 118.2 in April, from 120.2 in March (versus the neutral 100 line from January 2022). This was mirrored in the revenues index, which declined to 104.97 (from 106.13). Unemployment rates have been stable across most surveyed economies. Among the developed economies, the United States saw total nonfarm payroll employment increase by 139,000 in May; the unemployment rate remained unchanged at 4.2%. In the eurozone, unemployment is at a decade-low 6.2%, while wages rose 3.4% nominally in the first quarter—about 1.5 % in real terms thanks to easing inflation. UK unemployment was estimated at 4.6%, while the UK economic inactivity rate (for people aged 16 to 64 years) was estimated at 21.3% in February to April, below year-ago estimates, and down in the latest quarter. The estimated number of vacancies in March to May 2025 was 736,000, a decrease of 63,000 on the quarter. Among the emerging economies, China’s overall surveyed urban unemployment rate edged down to 5.0% in May (5.1% in April). The youth unemployment rate eased for a third consecutive month, to 14.9% in May (15.8% in April). India’s unemployment rate rose to 5.6% in May 2025, up from 5.1% in April, according to the latest Periodic Labour Force Survey. This increase was partly due to a drop in farm activity after the end of the harvest season. In Mexico’s labor market, total unemployment edged down by 0.03 percentage points to 2.59% in April. However, formal employment declined by approximately 47,400 jobs. Following a strong rebound in May, momentum in most equity markets has eased in June. Volatility in equity markets also eased, whereas oil price volatility rose amid recent developments in the Middle East. In the United States, the S&P 500 climbed 6.2% in May, bringing the one-year return to 12.0%; the Dow Jones gained 3.9% over the month but was down 0.6% year to date. During May, the CBOE Volatility Index averaged 18.6 (24.6 in April). India’s BSE SENSEX and NIFTY 50 experienced a sharp rally with the SENSEX rising 3.7% and the NIFTY gaining 3.2%, while Brazil’s Bovespa equities index gained 1.5% in May, with mid-June results already presenting gains of 1.2%. Most bond yields declined, supported by stabilizing inflation expectations. The Global Container Throughput Index edged up slightly in April, signaling a modest pickup in global port activity. Nevertheless, total port trade is still below its level of a year ago. Spot freight rates rose in June, following a modest recovery from their April 2024 low. During May, global supply chain pressure is estimated to have reached its highest level so far this year, as port volumes have grown. Export growth remained uneven in April, rising in India, the United States, China, and Mexico but falling sharply in the eurozone. Similarly, imports growth was also uneven in April, rising in India, Russia, and the United States but also falling sharply in the eurozone. Looking more closely at individual economies, US exports in April reached $289.4 billion, up $8.3 billion on March. April imports were $351.0 billion, $68.4 billion lower than in March. The monthly deficit dropped by 55.5% to $61.6 billion ($140.6 billion in March). By contrast, the euro area’s trade surplus shrank sharply in April to €9.9 billion (March: €36.8 billion), led by a significant drop in chemical exports. Compared to April 2024, the trade balance declined moderately by €3.7 billion, with weaker surpluses in machinery and vehicles only slightly offset by a narrower energy deficit. The US-UK Economic Prosperity Deal (EPD) removes some trade barriers between the United Kingdom and United States. The move will bring into force parts of the EPD agreed between the two countries in May and reduce tariffs on UK cars being shipped to the United States. However, the agreement includes a 10% levy on most UK goods, including cars, and did not address the expected removal of charges on steel imports. The fluctuating tariff situation has had a noticeable impact on trade between China and the United States. In May, China’s exports to the United States declined by over a third to reach –34.5%, on an annual basis. This compares with growth of 9.1% and –21.0% in March and April, respectively. The same trends were observed for imports from the United States; these registered a –18.1% contraction in May (compared with –9.5% in March and –13.8% in April). India’s merchandise trade deficit narrowed to $21.88 billion in May from $26.42 billion the previous month, driven by a drop in imports. Merchandise exports stood at $38.73 billion in May 2025, 2.17% down from the year-ago figure of $39.59 billion in May 2024. India’s imports fell by 1.7% year on year to $60.61 billion in May. The overall trade deficit (combining merchandise and services) narrowed to $6.62 billion in May from the $9.35 billion registered in the same month last year. Brazil’s trade balance recorded a surplus of US $7.2 billion in May, according to preliminary data, down from US $7.6 billion in April. The lower surplus was driven by a slower rise in exports (US $30.1 billion in May, up from US $29.9 billion in April) accompanied by a faster increase in imports (US $22.9 billion in May, up from US $22.2 billion in April). Mexico recorded a trade surplus of about $1 billion in May, as exports rose to $55.5 billion (up from $54.3 billion in April), while imports increased slightly to $54.5 billion. Export growth was driven by key sectors such as oil and manufacturing, particularly automotive products.
* * *
Consequently, businesses need to prepare for resilience in a reordering world—but granularity will be key as shifts across many thousands of products reshape the geometry of global trade. In a June 25 article—“ The great trade rearrangement”—McKinsey Global Institute authors explore how hard such changes might be, and introduce the concept of a “rearrangement ratio.” Research finds that 35% of US imports from China have a ratio of less than 0.1, indicating a global available export market ten times larger than current US imports from China. However, where ratios are higher, rearrangement becomes harder. Notably, for the 5% of trade where the ratio exceeds 1.0—such as in rare earth magnets—US imports from China go beyond available global exports. Moreover, many consumer products such as laptops, smartphones, and toys are harder to rearrange. Modeling finds that Europe emerges as the fulcrum of trade rearrangement across nine simulations. Other geographies will also be affected, with US imports from as many as 70 countries rising by more than 10%. |
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Regional and Country Summary
US trade deficit achieves record monthly drop of 55.5%; Bulgaria set to join eurozone in 2026; UK monthly real GDP down by 0.3% in April 2025, but up by 0.7% in the three months to April, largely driven by growth in services.
United States Donald Trump signed “one Big Beautiful Bill”, Fed holds interest rates for fourth month running; US military involvement in Middle East conflict heightens economic uncertainty. After protracted negotiations in the U.S. Senate and House of Representatives, the 'One Big Beautiful Bill' was signed by Donald Trump on July 4. The bill extends the 2017 tax cuts, and raises the debt ceiling by $5 trillion. Other notable things include no tax on TIPS, no tax on overtime, (add capital depreciation), increased border security and medical reform. The Federal Reserve kept interest rates unchanged again in June, in the range 4.25–4.5%, where they have been since January. Despite rising inflation and slower GDP growth forecasts, Fed officials still see room for two rate cuts later in 2025. The central bank’s updated projections show inflation climbing to 3%, GDP dropping to 1.4% (down from 2.1%), and unemployment expected to hit 4.5%. The S&P 500 climbed 6.2% in May, bringing the one-year return to 12.0%; the Dow Jones gained 3.9% over the month but was down 0.6% year to date. During May, the CBOE Volatility Index averaged 18.6 (24.6 in April). The consumer price index (CPI) rose 2.4% for the 12 months ending May, after rising 2.3% over the 12 months ending April. Core inflation increased slightly to 2.8% (annualized). In May, one-year-ahead inflation expectations declined by 0.4 percentage points to 3.2%, three-year-ahead inflation expectations declined by 0.2 pp to 3.0%, and five-year-ahead inflation expectations declined by 0.1 pp to 2.6%. |
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On the housing market, the 30-year fixed-rate mortgage dropped slightly to 6.8%. Existing home sales rose 0.8% in May after a 0.5% fall in April. During May, housing residential starts fell to 1,256,000 (below the revised April estimate of 1,392,000), a 9.8% decrease. Completions in May were up to 1,526,000 versus the revised April estimate of 1,448,000.
The industrial production index was slightly down at 103.5 in May. May’s manufacturing purchasing managers’ index (PMI) rose to 52.0 from 50.2 in April; the services PMI increased to 53.7 (50.8 in April). May’s retail and food services sales (adjusted for seasonal variation and holiday and trading-day differences) were $715.4 billion: down 0.9% from April’s revised $722.0 billion. The consumer confidence index (Conference Board) rose by 12.3 points in May to 98.0 after five consecutive months of decline (85.7 in April). Total nonfarm payroll employment increased by 139,000 in May; the unemployment rate was unchanged at 4.2%. Oil prices were largely unaffected by the US strike on several Iranian nuclear facilities. Currently, a US-brokered ceasefire is holding between Israel and Iran, and oil prices remain stable at around $66 per barrel. Earlier this month, the U.S. administration announced a doubling of the existing 25% tariffs on steel and aluminum to 50% for all countries except the United Kingdom. In parallel, a new 50% tariff on copper imports was introduced, scheduled to take effect on August 1. These measures, framed by the administration as necessary to protect national security, are intended to strengthen the competitiveness and resilience of domestic steel, aluminum, and copper industries. |
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Eurozone
Euro area recovery uneven; consumer spending and construction strong, but trade surplus and industrial output weak; inflation continues to ease; Bulgaria set to join eurozone in 2026. In the first quarter of 2025, the euro area economy expanded by 0.6% quarter on quarter, exceeding earlier estimates of 0.4% and indicating improvement in the eurozone economic environment. This acceleration was primarily driven by gains in household consumption (+0.2 pp), investment (+0.4 pp), and a positive net trade contribution (+0.3 pp). By early Q2 2025, eurozone growth appears more modest, likely around 0.3–0.4%. Weakness in services is balanced only partially by stabilizing manufacturing, while lower inflation and heightened global risks (notably trade tensions) have led the European Central Bank (ECB) to ease further. Taken together, these signals point to a cautious and fragile environment, with potential upside tied to resurgent consumption or improved trade terms. ECB Vice-President Luis de Guindos said on June 16 that the risk of inflation dropping below the 2% target is now “very limited” and no extra monetary tightening is planned. Supporting his view, May headline inflation hit 1.9% (core 2.5%, services 3.2%), and producer prices fell 2.2% month on month in April. The labor market remains strong: unemployment is at a decade-low 6.2%, while Q1 wages rose 3.4% nominally—about 1.5 % in real terms thanks to easing inflation. |
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The euro area’s trade surplus shrank sharply in April to €9.9 billion (March: €36.8 billion), led by a significant drop in chemical exports. Compared to April 2024, the trade balance declined moderately by €3.7 billion, with weaker surpluses in machinery and vehicles only slightly offset by a narrower energy deficit.
Industrial production fell by 2.4% month on month in April but remained up 0.8% year on year. The decline may have been driven by weak demand from major trade partners (eg, China and the US) and continuing energy price volatility in some Eurozone countries. Construction output rose by 1.7% month on month and 3.0% year on year. May’s purchasing managers’ index (PMI) data presented a mixed picture: the composite PMI held steady at 50.4, the services PMI declined to 49.7, and the manufacturing PMI remained at 51.5. These figures reflect a stagnation in overall activity, potentially linked to the current climate of uncertainty. On June 19, euro area finance ministers endorsed Bulgaria’s accession to the eurozone, confirming that the country meets all convergence criteria, as verified by both the European Commission and the ECB. Bulgaria is now set to adopt the euro on January 1, 2026, becoming the 21st member of the euro area. Final EU approval is expected by July. |
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United Kingdom
CPI inflation falls to 3.4% in May; monthly real GDP down by 0.3% in April 2025, but up by 0.7% in the three months to April, largely driven by growth in services; Bank of England maintains policy rate at 4.25% in June. According to the OECD’s June Economic Outlook, UK GDP growth is projected to reach 1.3% in 2025 before slowing to 1.0% in 2026, dampened by heightened trade tensions, tighter financial conditions, and elevated uncertainty on business sentiment and consumer confidence. Inflationary pressures will initially linger, due to higher import prices and robust wage growth in 2025, but subside during 2026, as spare capacity emerges and the labor market loosens. Unemployment is expected to rise moderately to 4.6%. Substantial debt interest payments will continue to weigh on the fiscal balance and push up public debt. Consumer price index (CPI) inflation fell to 3.4% in May, a slight decrease from April’s 3.5%. The downward move was largely the result of transport costs, partially offset by food, furniture, and household goods. On a monthly basis, CPI rose by 0.2% in May 2025 (0.3% in May 2024); core CPI rose by 3.5% in the 12 months to May 2025 (March 3.8%). On June 19, the Bank of England Monetary Policy Committee voted to maintain the policy rate at 4.25%. The seasonally adjusted S&P Global UK Manufacturing PMI rose to a three-month high of 46.4 in May, up from 45.4 in April and above the earlier flash estimate of 45.1. The PMI has nonetheless signaled a deterioration in operating performance in each of the past eight months. A combination of weak global demand, turbulent trading conditions, and rising costs led to reduced levels of output, new orders, new exports, and employment. |
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UK service providers experienced a marginal downturn in business activity during April, ending a 17-month period of expansion. This largely reflected a renewed downturn in order books, and the fastest decline in export sales since February 2021. At 49.0 in April, down from 52.5 in March, the headline seasonally adjusted UK Services PMI was at its lowest since January 2023. The latest reading signaled a marginal decline in overall output, which contrasted with modest growth in the first quarter of 2025.
The seasonally adjusted S&P Global UK Construction PMI posted 47.9 in May, up from 46.6 in April, to signal the slowest reduction in output volumes and new orders since January, while growth projections for the year ahead improved again. Employment remained a weak spot, with job shedding accelerating to its fastest rate since August 2020. In June 2025, growth in average total pay was 5.3%, while real total pay rose by 1.5%. Unemployment was estimated at 4.6%. The UK economic inactivity rate (for people aged 16 to 64 years) was estimated at 21.3% in February to April, below year-ago estimates, and down in the latest quarter. The estimated number of vacancies in March to May 2025 was 736,000, a decrease of 63,000 on the quarter. Vacancies declined for the 35th consecutive quarterly period. UK Chancellor Rachel Reeves announced the 2025 Spending Review on June 17, setting out plans to boost economic growth, improve public services, and enhance national security, with a 2.3% annual increase in departmental budgets until 2028–29. Key investments include £29 billion for the NHS, £39 billion for affordable housing, and £14.2 billion for nuclear energy. Devolved governments in Scotland, Wales, and Northern Ireland receive record funding. Meanwhile, a deal removing some trade barriers between the UK and US has been signed off by both countries. The move will bring into force parts of a deal agreed between the two countries last month and reduce tariffs on UK cars being shipped to the US. However, the agreement includes a 10% levy on most UK goods, including cars, and did not address the expected removal of charges on steel imports. |
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In emerging economies, China experienced a moderate slowdown; India showed strong momentum in June; Russia poised for recession.
China
In May, China’s economic activities experienced a moderate slowdown; growth rates in industrial production, investment, and trade all decelerate; amount of new credit recovered. China’s industrial output growth softened to 5.8% year on year in May, compared to the 6.1% seen in April. By sector, manufacturing output remained resilient at 6.2% growth, though dropping from 6.6% expansion in April. The mining sector’s output growth was stable at 5.7%, the same level as April. Meanwhile, the utility sector’s output growth reached 2.2%, compared to 2.1% in April. Investment activities saw a deceleration in growth. Overall fixed-asset investment registered a year-on-year increase of 2.9% in May, a slowdown from the 3.6% growth in April. Among various sectors, manufacturing investment growth remained strong at 7.8% in May, albeit posting a decline from the 8.2% recorded in April. Infrastructure investment growth held steady, rising by 5.6% (compared to 5.8% in April). However, real estate investment remained weak with a contraction registering −12.6% (–12.0% in April). The real estate market continued to shrink in May. On the demand side, sales revenue for new residential properties was down, −6.8% year on year, compared to a −7.2% decline in April. On the supply side, floor space fell by −17.5% year-on-year in May, roughly matching the −17.9% drop in April. |
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In May, new credit rose to RMB 2.3 trillion, down from RMB 1.2 trillion in April. Meanwhile, total social financing reached RMB 426.0 trillion in May, marking an 8.7% year-on-year increase, which was in line with the growth observed in April.
The overall surveyed urban unemployment rate edged down to 5.0% in May (5.1% in April). The youth unemployment rate further eased for a third consecutive month, to 14.9% in May (15.8% in April). In May, cross-border trade experienced a year-on-year growth rate of 1.3%, a visible slowdown from the 4.4% increase seen the previous month. Specifically, export growth eased to 4.8% in May, down from 8.1% in April. Meanwhile, import growth saw a contraction of −3.4%, a larger decline than April’s −0.2%. The fluctuating tariff situation has had a noticeable impact on trade between China and the US. In May, China’s exports to the US declined by over a third, at –34.5%, on an annual basis. This compares with growth of 9.1% and –21.0% in March and April, respectively. The same trends were observed for imports from the US; these registered a –18.1% contraction in May (compared with –9.5% in March and –13.8% in April). |
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India
India’s economy showed strong momentum in June, marked by rising outputs and exports; inflation remained below 4% for a fourth consecutive month, supporting stable consumer demand; RBI’s recent rate cut and policy shift aim to sustain growth amid global headwinds. The HSBC Flash India Composite Output Index climbed to a 14-month high of 61.0 in June, up from 59.3 in May. This rally is mainly attributed to scaled-up output by Indian companies in response to faster increases in total new business intakes and international sales. Notably, the upturn in export orders was the strongest since comparable data became available in September 2014. Services gained momentum with the activity index rising to 60.7 from May’s 58.8—the strongest since August last year—while manufacturing gained pace with the purchasing managers’ index (PMI) climbing to 58.4 in June from May’s 57.6. In May 2025, India’s headline consumer inflation rate dropped sharply to 2.82%, from 3.16% in April, to its lowest level since February 2019. The fall was the result of a significant decline in food prices and a favorable base effect. India’s unemployment rate rose to 5.6% in May 2025, up from 5.1% in April, according to the latest Periodic Labour Force Survey. This increase was partly due to a drop in farm activity after the end of the harvest season. |
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On the equity markets, India’s BSE SENSEX and NIFTY 50 experienced a sharp rally driven by the Reserve Bank of India’s (RBI) June 6 announcement it was cutting the repo rate by 50 basis points. The SENSEX rose 3.7% and the NIFTY gained 3.2%. Because of geopolitical tensions, specifically in the Middle East, global market sentiment has remained cautious.
India’s merchandise trade deficit narrowed to $21.88 billion in May from $26.42 billion the previous month, driven by a drop in imports. Merchandise exports stood at $38.73 billion in May 2025, 2.17% down from the year-ago figure of $39.59 billion in May 2024. India’s imports fell by 1.7% year on year to $60.61 billion in May. The overall trade deficit (combining merchandise and services) narrowed to $6.62 billion in May from the $9.35 billion registered in the same month last year. RBI has taken multiple measures to infuse liquidity into the system, including three consecutive rate cuts. On June 6, the central bank reduced the repo rate by 50 basis points—from 6.00% to 5.50%—and cut the cash reserve ratio from 4% to 3%. Following this announcement, the central bank changed its monetary policy stance from “accommodative” to “neutral”, stating that it may have limited space for further easing. |
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Brazil
Recent results indicate positive dynamics for both financial markets and the real economy, despite policy rate hikes. On June 18, the Banco Central do Brasil’s Monetary Policy Committee (Copom) raised the Selic rate from 14.75% to 15% in a unanimous decision. Copom emphasized that the interest rates hike was partially driven by uncertainty in relation to the US economy, geopolitical issues, and sustained inflation in Brazil, despite “some dynamism” in the labor market accompanied by moderate economic growth. Inflation was slightly down, touching 5.32% in May, compared with 5.53% in April, ending a three-month rising trend that led to the highest level of inflation since February 2023. Inflation remains above the central bank’s upper target limit of 4.50%. The three-month moving average unemployment rate fell to 6.6% in April (from 7% in March), ending a four-month rising trend. |
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On the financial markets, the average monthly exchange rate was BRL 5.66 per USD in May (versus BRL 5.79 in April). The Bovespa equities index rose in May, gaining 1.5% in value, while mid-June results are already presenting gains of 1.2%.
Consumer confidence remained below the neutral 100 mark, with the seasonally adjusted May figure (from FGV) trending up at 84.0 (81.1 in April). Meanwhile, business confidence rose slightly to 94.8 (from 94.4 in April). Brazil’s manufacturing industry continued to contract early in the year, despite the Monthly Industrial Physical Production (PIM) Index remaining steady, edging down from 99.6 in March to 99.4 in April (versus the neutral 100 line from January 2022). This was the result of a dip in the extractive industry, which went down by 2.3% during the period, while factory production increased moderately, rising only 0.2%. The Monthly Services Survey (PMS) volume index decreased to 118.2 in April, from 120.2 in March (versus the neutral 100 line from January 2022). This was mirrored in the revenues index, which declined to 104.97 (from 106.13). The largest revenue drop was in the accommodation sector (down 16% since March), followed by other family-related services (down 10%). Both sectors also saw the biggest volume losses, down 15.8% and 10.1% respectively. The positive surprise was in the air transportation segment, which saw a revenue boost of 4.4% accompanied by a volume increase of 21.8%. May’s trade balance recorded a surplus of US $7.2 billion, according to preliminary data, down from US $7.6 billion in April. The lower surplus was driven by a slower rise in exports (US $30.1 billion in May, up from US $29.9 billion in April) accompanied by a faster increase in imports (US $22.9 billion in May, up from US $22.2 billion in April). On June 16, Brazil’s Chamber of Representatives struck down an urgent request for a tax-raising bill. The result underlines the legislature’s lack of interest in pursuing increases in the Tax on Financial Operations (IOF). However, this move creates uncertainty by maintaining the validity of the rises established by the second of two decrees introduced by the executive. The government has been pushing for fiscal balance mainly by seeking to boost revenue. |
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Russia
Russia’s economic growth has slowed in line with expectations amid accumulating imbalances; central bank lowers interest rate despite still high inflation; budget deficit is increasing and trade surplus shrinking; economic conditions for many households have worsened.
Preliminary GDP growth estimates have been revised down to 1.4% year on year in the first quarter (from 1.7%). This translates into a sequential contraction of 1.2% and puts Russia’s economy on the brink of recession. However, April’s high-frequency data have suggested marginal improvement in industrial production and consumer activity, leaving some space to avoid contraction in the second quarter. Most institutional forecasters expect Russia’s GDP to grow by 1.5–2% this year, constrained by mounting imbalances. Russian output has relied on government spending, but at the same time, output has declined in many sectors (such as automotive and machinery) due to sanctions. Government investment and consumption will likely remain the main growth drivers this year. At its June 6 meeting, the Central Bank of the Russian Federation (CBR) decided to lower the key interest rate by 100 basis points to 20% following last year’s series of hikes. Headline inflation has peaked, but recent readings have remained around 10% annually. Month-on-month inflation shows signs of a gradual slowdown. According to the CBR statement, slowing price growth and weak demand, including recession in industry, provided sufficient evidence for a rate cut—even with inflation still well above the target of 4%. Nevertheless, monetary conditions remain tight and continue to dampen credit growth. |
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Shrinking hydrocarbon revenues and low oil prices have contributed to a widening federal budget deficit. The government increased this year’s budget deficit target from 0.5% to 1.7% of GDP. However, this is based on assumed GDP growth of 2.5%, and it is expected that this year’s deficit could overshoot the target. Lower oil revenues also translated into April’s trade in goods surplus declining to $9 billion (from $12 billion in March), as exports stagnated while imports rose.
According to February’s consumer survey by the Central Bank of Russia, around 30% of respondents claimed that their economic situation had deteriorated over the past 12 months. Notably, rising food prices have made life harder for Russia’s poorest households as nearly half the spending by households in the poorest decile goes on food. |
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Mexico
Mexico posted a trade surplus in May as exports rose, while inflation also increased; Mexican peso appreciated against the US dollar. In May, annual inflation in Mexico rose to 4.4%, up from 3.9% in April. In response to slowing economic activity, Mexico’s central bank, Banxico has cut its benchmark interest rate twice in recent months: first by 50 basis points to 8.5% in mid-May, and again to 8.0% on June 26. This marked the fourth consecutive rate cut, despite inflation remaining elevated. Banxico aims to gradually return inflation to its 3% target by the third quarter of 2026. On the currency front, the peso appreciated against the US dollar, strengthening from 20.1 in April to 19.4 in May. Consumer confidence also improved, rising by 0.23 points to 104.1, the first increase after six months of decline. Nevertheless, manufacturing activity continued to weaken. The Mexico manufacturing purchasing managers’ index (PMI) rose slightly from April’s 50-month low of 44.8 to 46.7 in May; however, the indicator still points to a firm deterioration in business conditions. The sector faced another challenging month, with sharp declines in new orders—especially from export markets—leading to reduced production, lower purchasing activity (the steepest drop since December 2020), and continued cuts to inventories and employment. |
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In the labor market, total unemployment edged down by 0.03 percentage points to 2.59% in April. However, formal employment declined by approximately 47,400 jobs.
Mexico recorded a trade surplus of about $1 billion in May, as exports rose to $55.5 billion (up from $54.3 billion in April), while imports increased slightly to $54.5 billion. Export growth was driven by key sectors such as oil and manufacturing, particularly automotive products. On the political front, the 2025 Mexican judicial elections, held on June 1, marked a historic milestone—both nationally and globally—as all federal judges were elected by popular vote for the first time. The ruling party, Morena, secured a dominant position across key judicial bodies, including the Supreme Court, the Judicial Disciplinary Tribunal, and the Electoral Tribunal. Despite the election’s significance, voter turnout was historically low at just 13%. International observers raised concerns over the election’s complexity and susceptibility to political influence. On June 4, the US government raised tariffs on aluminum and steel imports from Mexico to 50%, citing national security concerns. In response, Mexico entered negotiations with US officials to seek exemptions or a tariff-rate quota system that would allow a fixed volume of exports to enter duty-free. Talks are continuing, as both sides work to avoid broader economic fallout—particularly for Mexico’s industrial sector, which is closely tied to the US market. |
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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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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. |
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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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