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Executive Summary
Inflation trends remain mixed across regions, with central banks responding through divergent rate moves amid ongoing uncertainty. Global investors ended the month on a positive note, as equity markets rebounded in May and most countries closed higher. Optimism was also reflected in improving consumer sentiment in several economies. In the US, attention is on the Senate as it advances a new budget reconciliation bill, while trade negotiations intensify ahead of the July 9 expiration of the 90-day pause period. Rising geopolitical tensions—driven by the recent escalation of conflict between Israel and Iran—have added a new layer of uncertainty, raising concerns around energy markets and regional stability.
This month’s headlines have been all about US economic policy and global responses to persistent trade and geopolitical uncertainty. In May, US President Donald Trump signaled the possibility of introducing a 25% tariff on imported smartphones and other foreign-made electronics in June unless manufacturing shifted to the US, while the administration also postponed a planned 50% tariff on European Union goods until July 9 to allow space for continued negotiations. On May 22, the US House of Representatives passed a major budget reconciliation bill, known as the “One Big Beautiful Bill Act”—a key legislative priority for President Trump. The bill aims to overhaul the tax system and deliver significant cuts, though the Congressional `Budget Office estimates it would add several trillion dollars to the federal deficit over the next decade and disproportionately affect lower-income families. The bill now heads to the Senate. Meanwhile, Moody’s downgraded the US credit rating from Aaa to Aa1, citing concerns over rising debt and interest costs. Several central banks reduced interest rates this month, by varying amounts, as they seek to maintain momentum in their economies in the face of global uncertainties. However, they also remain mindful that inflation continues to linger in the shadows. On the one hand, China, the UK, and Mexico reduced rates by 10, 25, and 50 basis points respectively, with the European Central Bank (ECB) and the Reserve Bank of India (RBI) cutting rates the previous month. On the other hand, Brazil hiked the Selic rate by 50 basis points, while Russia maintained its key interest rate at the high level of 21% to combat inflation. Meanwhile, the Federal Open Market Committee (FOMC) opted to maintain US interest rates at the current range of 4.25–4.50% (where they have been since December). The US economy contracted by 0.2% in Q1 2025, following a 2.4% expansion in Q4 2024. The decline was primarily due to increased imports (a subtraction in the GDP calculation) and reduced government spending—both likely attributable to recent policy decisions—and partially offset by gains in consumer spending and investment. The euro area economy expanded by 0.4% quarter on quarter in Q1 2025, surpassing the previous quarter’s 0.2% growth. The economy was boosted by a surge in exports, particularly in chemicals and machinery, as businesses expedited shipments ahead of anticipated US tariffs. That said, growth rates are somewhat variable across the different EU nations. Notably, Ireland’s GDP grew by 3.2%, influenced by multinational corporate activities (especially in pharmaceuticals and tech), while Germany and France recorded modest growth of 0.2% and 0.1%, respectively. Looking ahead, the European Commission’s Spring 2025 Economic Forecast projects GDP growth of 0.9% for the euro area in 2025 and reflects the backdrop of heightened trade tensions and other uncertainties, which are expected to weigh on investment and export activities. The UK and the EU, meanwhile, reached a new agreement setting out post-Brexit relations on areas including fishing rights, trade, and defense. China’s growth continues, although industrial output saw a more moderate expansion of 6.1% year on year in April, a decline from March’s 7.7% growth. Sustained recent growth in India’s economy, meanwhile, has led the IMF to announce that the country will likely overtake Japan as the world’s fourth largest economy in financial year 2025–26, with projected GDP of $4.187 billion. Growth in Russia’s wartime economy, however, has slowed with the Ministry of Economic Development of the Russian Federation estimating Q1 2025 GDP growth at 1.7% annually—much slower than last year’s 4%. |
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Consumer confidence has been fragile, generally decreasing over recent months. However, the US has seen an upturn, reflected in the consumer confidence index (Conference Board) rising by 12.3 points in May to 98.0 following five consecutive months of decline (85.7 in April). Similarly, consumer confidence in Brazil has remained below the neutral 100 mark, although the seasonally adjusted April figure trended slightly up to 84.8 (84.3 in March)—likely weighed down by elevated borrowing costs and persisting high inflation. In contrast, consumer confidence in Mexico continued to decline for a fifth consecutive month, falling to 103.9 in March from its peak of 105.4 last October.
Despite this, retail sales have largely maintained steady growth over the past year. However, in Russia’s wartime economy, retail sales volumes have been flat for several months, showing little change both in March versus February and across the whole of Q1 2025 versus Q4 2024—and stabilizing at around 3% above the year-ago level. Stagnation in consumer demand can be attributed to a much slower rise in real wages during early 2025 with high inflation, exceeding 10% in March, eroding gains in consumers’ purchasing power. Overall long-term inflation expectations have remained relatively stable within the 2.2% to 2.5% range. However, April saw US median inflation expectations above this level. They were unchanged at 3.6% for the one-year-ahead horizon, up by 0.2 percentage points to 3.2% at the three-year-ahead horizon (the highest reading since July 2022), and down 0.2 percentage points to 2.7% at the five-year-ahead horizon. Global commodity prices continued growing in April, driven by soaring demand for minerals and metals. However, energy commodities slightly decreased across the main indexes. The price of gold has been rising to decade-high figures, while copper demand is also trending up. Meanwhile, food prices continue to hover at 24% above pre-pandemic levels. Inflation trends (consumer and producer prices) across developed economies are generally continuing to move sideways. However, high inflationary pressures remain a significant concern for policymakers in both Brazil and Russia. Looking at the advanced economies, we see that the US consumer price index (CPI) rose 2.3% for the 12 months ending April, after rising 2.4% over the 12 months ending March. Core inflation was slightly up at 2.8% (annualized). Eurozone headline inflation remained stable at 2.2% in April, while core inflation stood at 2.7%, and services inflation reached 4%, indicating slight increases compared with the previous month. In the UK, CPI inflation rose to 3.5% in April, a significant increase from March’s 2.6%, which was largely the result of energy costs. On a monthly basis, CPI rose by 1.2% in April 2025 (0.3% in April 2024); core CPI rose by 3.8% in the 12 months to April 2025 (March 3.4%). Among the emerging economies, consumer prices in China deflated at a rate of −0.1% in April (the same as in March), weighed down by transportation prices (−3.9%). Producer prices continued to deflate, at a rate of −2.7% in April (−2.5% in March). India’s retail inflation eased to 3.16% in April, the lowest figure since July 2019 and down from 3.34% the previous month. The drop was driven mainly by a sharp fall in food prices, especially vegetables, pulses, and fruits, with food inflation down to 1.78%. In contrast, Brazil saw inflation accelerate to 5.53% in April, up from 5.48% in March, posting a third consecutive monthly increase and reaching its highest level since February 2023. In Mexico, annual inflation was also up, albeit only slightly to 3.9% in April (from 3.8% in March) but still just below the upper bound of the central bank’s 2–4% target range. |
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Both the manufacturing and services sectors remain close to their long-term averages, according to global purchasing managers’ indexes (PMIs). However, expansion in the manufacturing sector has been stagnant due to concerns about anticipated rising costs. At the same time, April has seen a weakening services sector across the main economies. Nevertheless, leading indicators were above the long-term trend across the main economies during April. |
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The US economy contracted by 0.2% in Q1 2025, following a 2.4% expansion in Q4 2024. The decline was primarily due to increased imports and reduced government spending, partially offset by gains in consumer spending and investment.
The consumer confidence index (Conference Board) rose by impressive 12.3 points in May to 98.0 after five consecutive months of decline (85.7 in April). April saw the S&P 500 stock market index down 0.7%, bringing the one-year return to –5.3%; the Dow Jones lost 3.2% over the month and was down 4.41% year to date. Global markets experienced a sell-off following Liberation Day tariff announcements; however, markets recovered when the Trump administration announced a 90-day pause on the reciprocal tariffs. During April, the CBOE Volatility Index rose, averaging 24.6 (21.8 in March). At its May meeting, the Federal Open Market Committee (FOMC) opted to maintain interest rates at the current range of 4.25–4.50% (where they have been since December). The industrial production index remained at 103.8 in April. May’s manufacturing purchasing managers’ index (PMI) rose to 52.3 from 50.2 in April; the services PMI increased to 52.3 (50.8 in April). |
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On the housing market, the 30-year fixed-rate mortgage increased slightly to 6.8%. Existing home sales decreased by 0.5% in April. During April, housing residential starts rose to 1,361,000 (above the revised March estimate of 1,339,000), a 1.6% increase. Completions in April were down to 1,458,000 from a revised March estimate of 1,549,000.
The consumer price index (CPI) rose 2.3% for the 12 months ending April, after rising 2.4% over the 12 months ending March. Core inflation was slightly up to 2.8% (annualized). April’s median inflation expectations were unchanged at the one-year-ahead horizon at 3.6%, up by 0.2 percentage points to 3.2% at the three-year-ahead horizon (the highest reading since July 2022), and down 0.2 percentage points to 2.7% at the five-year-ahead horizon. On the labor market, unemployment remains unchanged at 4.2% in April (3.5% in January 2020), while total nonfarm payroll employment increased by 177,000. President Donald Trump proposed a 25% tariff on imported smartphones and other foreign-made electronics unless manufacturing is shifted to the US. The administration also delayed a planned 50% tariff on EU goods to July 9 to allow for continued negotiations. Moody’s downgraded the US credit rating from Aaa to Aa1 because of concerns over rising debt and interest costs. This marks a historic event in which all three major ratings agencies have downgraded US credit from the top grade for the first time ever. The US House of Representatives recently passed a major tax bill, a key legislative priority for President Trump, aimed at overhauling the tax system and delivering significant cuts, marking a milestone in his second term. The bill is now going to the Senate. |
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Eurozone
GDP expands by 0.4% in Q1 2025; ECB projects 0.9% GDP growth for 2025; headline inflation holds steady at 2.2%; ECB eases key policy rate further; President Trump postpones 50% tariffs on EU. In the first quarter of 2025, the euro area economy expanded by 0.4% quarter on quarter, surpassing the previous quarter’s 0.2% growth. This acceleration was primarily driven by a surge in exports, particularly in chemicals and machinery, as businesses expedited shipments ahead of anticipated US tariffs. Notably, Ireland’s GDP grew by 3.2%, influenced by multinational corporate activities (especially in pharmaceuticals and tech). Meanwhile, domestic demand across the euro area remained resilient, supported by steady private consumption and a modest rebound in investment, contributing to the region’s broader recovery momentum. Germany and France recorded modest growth of 0.2% and 0.1%, respectively. Looking ahead, the European Commission’s Spring 2025 Economic Forecast projects GDP growth of 0.9% for the euro area in 2025, maintaining the pace observed in 2024. The forecast reflects the impact of heightened trade tensions and associated uncertainties, which are expected to weigh on investment and export activities. However, a rebound is anticipated in 2026, with growth projected to reach 1.4%, supported by expanding consumption and accelerating investment. In April, headline inflation remained stable at 2.2%, while core inflation stood at 2.7%, and services inflation reached 4%, indicating slight increases compared to the previous month. Producer prices decreased by 1.3% month on month in March but rose by 1.6% year on year. |
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Given the ongoing disinflation trend and a stable medium-term inflation outlook, the European Central Bank decided to cut key interest rates by 25 basis points on April 17, 2025.
The industrial production index rose in March (+2.6% month on month, +3.6% year on year), but May’s PMI data indicate an uneven recovery. The composite PMI fell to 49.5 (April: 50.1) signalling mild contraction; the services PMI declined to 48.9 (April: 51.0), while the manufacturing PMI showed modest improvement to 51.5. US President Donald Trump extended the deadline for imposing a 50% tariff on European Union imports from June 1 to July 9, 2025, following a positive conversation with European Commission President Ursula von der Leyen. The extension aims to provide additional time for trade negotiations between the US and the EU. Meanwhile, the European Central Bank (ECB) has warned that droughts could reduce euro area output by nearly 15%, highlighting risks to agriculture, manufacturing, mining, and construction—especially in southern Europe. |
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United Kingdom
CPI inflation rises to 3.5% in April; quarterly real GDP up by 0.7% in Q1 2025 with growth in both production and services sectors, but no growth in construction; Bank of England cuts policy rate to 4.25% in May. According to the Bank of England’s May Monetary Policy Report, inflation is likely to rise to 3.7% by September, partly due to increases in energy prices and some regulated prices such as water bills. However, it is expected to fall back to the 2% target in the medium term. Four-quarter GDP growth is projected to remain close to the current level of just over 1%, before picking up towards the end of the forecast period. The imposition of tariffs and heightened uncertainty around trade policies has introduced a new source of risk for the global economy. World export prices are expected to be weaker, and the overall impact of trade developments on the UK is therefore more likely to be disinflationary than inflationary. Consumer price index (CPI) inflation rose to 3.5% in April, a significant increase from March’s 2.6%. The upward move was largely the result of energy costs, which are typically increased in April by energy suppliers moving their prices to keep pace with inflation. On a monthly basis, CPI rose by 1.2% in April 2025 (0.3% in April 2024); core CPI rose by 3.8% in the 12 months to April 2025 (March 3.4%). On May 9, the Bank of England Monetary Policy Committee voted to maintain the policy rate at 4.25%. UK manufacturers faced tough operating conditions in April, with market uncertainties rising, client confidence retreating, and cost inflation nearly reaching a two-and-a-half-year peak. At 45.4 in April, the seasonally adjusted S&P Global UK Manufacturing Purchasing Managers’ Index (PMI) was below the neutral 50.0 mark for the seventh straight month. The headline PMI was up slightly from March’s 17-month low of 44.9 and above the earlier flash estimate of 44.0. |
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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 the 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.
Construction activity decreased for the fourth consecutive month as rising business uncertainty led to delayed decision making on new projects, declines in total order books, and cutbacks in staffing numbers. However, output growth projections edged up to their highest since December 2024. At 46.6 in April, the headline UK Construction PMI remained below the 50.0 no-change value, but was up slightly from 46.4 in March, signaling the slowest decline in output levels for three months. In Q1 2025, growth in average total pay was 5.5%, while real total pay rose 1.7%. Unemployment was estimated at 4.5%. 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 February to April 2025 was 761,000, a decrease of 42,000 on the quarter. Vacancies declined for the 34th consecutive quarterly period. The UK and the EU reached a new agreement setting out post-Brexit relations on areas including fishing rights, trade, and defense. The UK extended EU fishing access until 2038, secured reduced food export checks, and gained the ability to sell raw meat to the EU, while committing to follow EU rules with flexibility to diverge under certain conditions. A UK-EU defense pact was also established, youth mobility and Erasmus+ rejoining are under negotiation, and UK citizens may regain access to EU e-gates and simplified pet travel. Finally, the UK and EU will link carbon markets to avoid tariffs on goods such as steel, saving £800 million annually, and will discuss UK access to the EU electricity market. |
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In emerging economies, China’s economic activities experienced a slowdown; India set to become world’s fourth-largest economy; Brazil raises Selic rate by 50 basis points.
China
In April, China’s economic activities experienced a slowdown. The growth rates for industrial production, investment, and trade all decelerated. Additionally, the amount of new credit declined; real estate market continued to weaken. China’s industrial output saw a more moderate expansion of 6.1% year on year in April, a decline from the 7.7% growth seen in March. Sector-wise, manufacturing output grew at 6.6%, though this was a step back from the 7.9% expansion in March. The mining sector’s output growth eased to 5.7%, down from 9.3% in March. Meanwhile, the utility sector’s output growth fell to 2.1%, compared with 3.5% in March. Investment activities saw a deceleration in growth. Overall fixed-asset investment registered a year-on-year increase of 3.6% in April, a slowdown from the 4.3% growth in March. Among various sectors, manufacturing investment growth remained strong at 8.2% in April, albeit a decline from the 9.2% recorded in March. Infrastructure investment growth held steady, rising by 5.8% (compared to 5.9% in March). However, real estate investment contracted by −12.0%, a steeper decline than the −10.9% drop in March. The real estate market experienced a slowdown in April. On the demand side, sales revenue for new residential properties decreased by −7.2% year on year, compared with a −1.0% decline in March. On the supply side, floor space fell by −17.9% year on year in April, easing slightly from an −18.6% drop in March. |
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In April, new credit tightened to RMB 1.2 trillion, down from RMB 5.9 trillion in March. Meanwhile, total social financing reached RMB 424.0 trillion in April, marking an 8.7% year-on-year increase, which was slightly higher than the 8.4% growth observed in March.
The overall surveyed urban unemployment rate edged down to 5.1% in April (5.2% in March). The youth unemployment rate decreased to 15.8% in April (16.5% in March). In April, cross-border trade recorded a year-on-year growth rate of 4.6%, a modest slowdown from the 5.0% increase seen the previous month. Specifically, export growth eased to 8.1% in April, down from the 12.3% surge in March. Meanwhile, import growth saw a reduced contraction of −0.2%, an improvement from the −4.4% decline in March. In May, the US and China reached an agreement to reduce the reciprocal tariff rates to 10%. This represents a substantial decrease from the previous high levels that had peaked at 145%. However, due to the presence of other existing duties, the effective tariff rate on most Chinese goods remains above 30%. In May, the People’s Bank of China announced a 10-basis-point cut in key benchmark lending rates, including the 7-day reverse repo rate and the one-year and five-year loan prime rates, in a bid to bolster economic growth. |
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India
India’s economy shows resilience despite global uncertainty and friction with Pakistan. IMF projections indicate India will likely overtake Japan as world’s fourth largest economy with projected GDP of $4.187 billion for financial year 2025–26. The HSBC India Manufacturing PMI rose slightly to 58.3 in May 2025 from 58.2 in April, exceeding expectations of 58.0, preliminary data showed. The reading signaled stronger operating conditions and marked the fastest expansion since June 2024, supported by robust growth in output and new orders, despite a slight moderation from April’s pace. The services PMI rose to 61.2, from 58.7 the previous month. India’s infrastructure output grew just 0.5% year on year in April 2025, the weakest in eight months. Crude oil and refinery products saw sharp declines of 2.8% and 4.5% respectively. Fertilizers and natural gas also slipped, while cement and steel grew at slower rates. Electricity generation rose 1%, while coal output improved to 3.5%. This is a steep drop from March’s revised 4.6% growth, reflecting a broad-based slowdown in core sectors that form 40% of the industrial production base. India’s retail inflation eased to 3.16% in April, the lowest figure since July 2019 and down from 3.34% the previous month. The drop was driven mainly by a sharp fall in food prices, especially vegetables, pulses, and fruits, with food inflation down to 1.78%. This sustained decline keeps 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. |
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India-Pakistan tensions in May caused the Nifty 50 to fall as much as 1.52%, with the Sensex dropping over 800 points at the open, while the rupee weakened by 0.8%. Despite these shocks, the Indian market proved resilient, rebounding 3.82% shortly after the ceasefire. Overall, the impact was sharp but short-lived, underlining the Indian stock market’s structural strength.
IMF projections in April’s World Economic Outlook anticipate India’s nominal GDP to marginally surpass Japan’s during 2025, to become the world’s fourth-largest economy. India’s merchandise trade deficit widened to $26.42 billion in April 2025, up from $21.54 billion in March, owing to an increase in oil and electronic goods imports. Outbound shipments in April were lower than in March. India and the UK signed a historic free trade deal on May 6, 2025, cutting tariffs on 90% of UK goods entering India and 99% of Indian exports to the UK. The agreement is expected to boost bilateral trade by $34 billion annually by 2040. Meanwhile, negotiators from both sides are working towards a potential trade deal between India and the United States. RBI continued taking steps to infuse liquidity into the system. RBI announced plans for purchasing government bonds worth 1.25 trillion rupees ($14.71 billion) via open market operations over four tranches in May. Measures taken by RBI since January 2025 have substantially improved the liquidity crunch. However, some seasonal challenges still remain. |
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Brazil
Inflation rose for the third consecutive month, while unemployment was up for a fourth month. Bad news was balanced by positive data from the Ibovespa, real economy, and trade. The three-month moving average unemployment rate rose slightly to 7% in March (from 6.8% in February), marking the fourth consecutive increase. Inflation accelerated to 5.53% in April, up from 5.48% in March, to post a third consecutive monthly increase and reaching its highest level since February 2023. Inflation remains above the central bank’s upper target limit of 4.50%. On May 7, the Banco Central do Brasil’s Monetary Policy Committee (Copom) followed through on its earlier guidance, raising the Selic rate from 14.25% to 14.75% in a unanimous decision. Copom emphasized that high interest rates are already moderating GDP expansion, and that caution and flexibility regarding new inputs for Brazil´s economy are needed in the current uncertain scenario. Some analysts are already noting a change of tone in the language used in the minutes, which could mean the tightening cycle is close to its end. On the financial markets, the average monthly exchange rate was BRL 5.79 per USD in April (compared to BRL 5.75 in March), with the real down after three months of appreciation since December’s low. The Bovespa equities index rose in April, gaining 3.7% in value, while mid-May results are already presenting gains of 3.16%. |
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Consumer confidence remained below the neutral 100 mark, with the seasonably adjusted April figure trending slightly up at 84.8 (84.3 in March)—likely weighed down by elevated borrowing costs and persisting high inflation. Meanwhile, business confidence rose slightly to 94.2 (from 93.7 in March).
Brazil’s manufacturing industry continued to contract early in the year, despite the Monthly Industrial Physical Production (PIM) Index climbing from 93.7 in February to 99.5 in March (versus the neutral 100 line from January 2022). The rise was sharper in the extractive industry, which went up by 15.5% during the period. Factory production increased more modestly, rising only 4.8%. The Monthly Services Survey (PMS) volume index increased to 120 in March, from 113.5 in February (versus the neutral 100 line from January 2022). This was mirrored in the revenues index, which increased to 106.0 (from 101.1). The largest revenue increase occurred in the accommodation sector (up 22.6% since February), followed by other land transportation services (up 22.3%). Both sectors also saw the biggest volume increase, up 21.9% and 21.8% respectively. The April trade balance recorded a surplus of US $8.1 billion, according to preliminary data, up from US $7.7 billion in March. The surplus was driven by a rise in exports (US $30.4 billion in April, up from US $28.7 billion in March) accompanied by a more modest increase in imports (US $22.2 billion in April, up from US $21 billion in March). A potential 6 billion real (US £1.05 billion) corruption scandal has recently been uncovered within Brazil’s social security system (INSS). Federal police allege pension payments were unlawfully deducted from pensioners, many from the poorest areas of the country, and redirected to various labor unions and associations. Ongoing investigations are examining potential links to government officials. |
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Russia
Economic growth was much slower across both industry and consumer segments in Q1, amid continuing high inflation; foreign trade contracted in Q1; budget plan revised; outlook assumes further slowdown.
The Ministry of Economic Development of the Russian Federation estimates Q1 2025 GDP growth at 1.7% annually—much slower than last year’s 4%. The short-term total output indicator has remained on a downward trend since January, declining by 2.3% compared to Q4 2024. This was confirmed by industrial production, which contracted by 1.8% quarter on quarter in Q1, though remaining 1.6% above the Q1 2024 level. Retail sales volumes have been flat for several months, showing little change both in March versus February and across the whole of Q1 2025 versus Q4 2024—and stabilizing at around 3% above the year-ago level. Stagnation in consumer demand can be attributed to a much slower rise in real wages during early 2025 with high inflation, exceeding 10% in March, eroding gains in consumers’ purchasing power. Inflation expectations remain elevated as well. Although the Central Bank of the Russian Federation noted that slowing economic growth has reduced inflationary pressures a bit and high interest rates have affected demand for consumer credit, at its April meeting the board decided to keep the key interest rate unchanged at 21%. The value of Russian goods and services exports contracted by 4% year on year in Q1, driven mainly by the poor performance of oil exports, which are estimated to have declined by 14%, due to both reduced exports prices and lower volumes. Meanwhile, the value of goods and services imports declined by 3%, while the current account surplus was reduced to $17 billion, down from $24 billion in Q1 2024. |
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Russia’s economic outlook has been clouded by the recent sharp decline in crude oil prices. In response, Russia’s finance ministry reduced its estimates for federal budget revenues this year. The predicted federal budget deficit under the new budget framework is significantly larger than earlier—up three-fold, to 3.8 trillion rubles (1.7% of GDP).
April’s forecast published by the International Monetary Fund sees Russian GDP growth slowing to 1.5% this year and 0.9% next year. Inflation is expected to run at 9% this year before slowing to the 4% target in 2026. This is largely in line with key international forecasts compiled by Consensus Economics and the Russian central bank’s estimates, which anticipate GDP growth of 1–2% this year and 0.5–1.5% next year. Net exports will likely be the main growth driver this year, as tight monetary policy has already started to dampen domestic consumption and demand for imports. Investments are expected to slow as well, amid rising costs. Despite this, the Ministry of Economic Development has retained its forecast, which is considered quite optimistic: it anticipates GDP growing by 2.5% in 2025 and 2.4% next year. |
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Mexico
Mexico posted a trade deficit in April as falling exports and soft external demand outweighed a stable currency and modest inflation. Consumer confidence continued to decline for the fifth consecutive month, falling to 103.9 in March from its peak of 105.4 last October. Mexico’s global manufacturing purchasing managers’ index (PMI) dropped further in April to 44.8, down from 46.5 in March, marking the sharpest deterioration in the sector’s health since February 2021 and extending the current contraction streak to ten months. New orders—particularly export orders—declined sharply. Output volumes reduced at their fastest pace in over four years, and forward-looking sentiment turned increasingly pessimistic amid concerns over tariffs, weak sales, tight cashflows, and subdued investment. In April, annual inflation in Mexico edged up slightly to 3.9%, from 3.8% in March, hovering just below the upper bound of the central bank’s 2–4% target range. On the currency front, the peso remained stable from March to April. In the labor market, total unemployment declined slightly in March by 0.03 percentage points to 2.62%. Formal employment rose by approximately 34,000 jobs, with the largest gains recorded in the agriculture and services sectors. |
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Mexico posted a small trade deficit of $88 million in April, as exports fell to $54.3 billion from $55.5 billion in March, while imports rose to $54.4 billion from $52.0 billion. Export performance weakened across key sectors, with declines in oil, automotive manufacturing, and agricultural shipments reflecting softer external demand. In contrast, imports increased across all major categories.
In April, the Mexican government launched Olinia, a new line of domestically designed and manufactured low-cost electric vehicles. The initiative is part of President Claudia Sheinbaum’s broader efforts to boost industrial self-sufficiency and promote sustainable transportation. Olinia vehicles will be priced between US $5,300 and US $8,800, and aim to expand access to electric mobility while reducing reliance on imported components. That same month, US tariffs on Mexican exports took effect, targeting key sectors such as energy (oil and gas), manufacturing (automotive, machinery, appliances), and agriculture. Despite growing trade tensions, both governments reached a bilateral agreement on April 28 to increase water flows from the Rio Grande, demonstrating that diplomatic dialogue remains active. As of May, the tariffs remain in place, with no formal retaliation from Mexico. Instead, the government is prioritizing import substitution, advancing industrial development through initiatives like Plan México and Olinia, and maintaining macroeconomic stability while keeping diplomatic channels open with the US. Looking ahead, Mexico is set to hold its first-ever popular elections for judicial positions on June 1, 2025. The reform will reduce the number of Supreme Court justices from 11 to 9 and introduce term limits, with the goal of enhancing judicial accountability. |
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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, Roman Büschgens, Darien Ghersinich, Yifei Liu, Gabriel Marini, Marianthi Marouli, Tomasz Mataczynski, Frances Matamoros, Alejandro Morales, 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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