Executive Summary

IMF revises global growth estimates upward but warns of ongoing trade tensions, while major economies—mainly the US and China—recorded strong growth in Q2 2025. Central banks remain in a holding pattern on interest rates.

The International Monetary Fund has raised global growth estimates to 3.0 percent for 2025 and 3.1 percent in 2026, according to its July 2025 World Economic Outlook Update released on July 29. Representing an upward revision from the April update, the projections reflect “front-loading ahead of tariffs, lower effective tariff rates, better financial conditions (including a weaker US dollar), and fiscal expansion in some major jurisdictions.” Nevertheless, the IMF emphasizes that its latest projections are some 0.2 percentage points below its pre-April 2 forecasts, “indicating that the trade tensions are hurting the global economy.”

The IMF suggests global inflation is expected to fall, while US inflation is predicted to stay above target. It anticipates global inflation reaching 4.2% in 2025 and 3.6% in 2026. It has flagged the downside risks from potentially higher tariffs, elevated uncertainty, and persistent geopolitical tensions, urging policymakers to make “restoring confidence, predictability, and sustainability” a priority. Notably, the Washington-based institution highlighted the need to reduce trade policy uncertainty and for countries to address fiscal vulnerabilities.

Meanwhile, the tariff story continues to unfold. A day after the IMF urged a reduction in tariff uncertainty, US President Donald Trump signed an executive order imposing 50% tariffs on Brazilian imports to the United States. Previously announced on July 9, the move is widely seen as designed to apply pressure in relation to the trial of former president Jair Bolsonaro in Brazil’s Supreme Court. On July 31, further tariff announcements saw US near neighbors—Mexico and Canada—each fare somewhat differently. Canadian goods now face a 35% tariff (up from 25%) on all products not covered by the US-Mexico-Canada trade agreement, while the White House held the import tax rate for Mexican goods at 25% for 90 days as talks with Mexican President Claudia Sheinbaum continue. Moreover, in the case of Canada, goods transshipped to another country to evade the new tariffs would be subject to a transshipment levy of 40%, the White House says. Among other countries to be hit with significant tariffs are Switzerland (39%), India (25%), and Taiwan (20%). Earlier in the month, the United States announced that it had reached new trade agreements with the European Union and Japan. In both cases, the deals establish new tariffs on most exports to the US at a rate of 15%. The framework deal with Europe also includes a commitment to purchase $750 billion in US energy over the next three years. What does this mean for the US tax take? The latest US customs duties data show that new tariffs have increased monthly import tax revenue around $6.5 billion to $21.5 billion. If the current trajectory continues, new tariffs might bring around $250 billion to $300 billion into US government coffers in 2025.

July was largely uneventful in terms of monetary policy, with only Russia cutting its policy rate, by 200 basis points to 18%, hard on the heels of a 100 basis points cut the previous month. Notably, the US Federal Reserve’s Federal Open Market Committee held interest rates steady for a seventh consecutive month in a split decision on July 30, despite a strong steer from President Trump. This decision maintains interest rates within the target range of 4.25–4.5%, where they have remained since January.

Initial GDP estimates for Q2 2025 indicate the US economy grew 3% (quarter on quarter, annualized), primarily driven by household consumption and an improvement in net trade due to a significant decline in imports. Meanwhile, China’s second-quarter GDP growth rate was reported at 5.2% year on year, almost in line with the pace of growth in the first quarter (5.4%). The annual target was set at 5.0% earlier this year by the government. Consumption accounted for most of the growth in GDP (52.3%), followed by investment (24.7%) and net exports (23.0%).

Global consumer confidence has recently seen a slight increase, driven mainly by improvements in sentiment among US and UK consumers. However, US consumer confidence deteriorated in June, dropping by 5.4 points to 93.0, according to the Conference Board. In the eurozone, consumer confidence edged up by 0.6 points in July but remained well below its long-term average, highlighting continued caution among households. Nevertheless, business sentiment in the eurozone showed modest improvement in July. In Brazil, consumer confidence remained below the neutral 100 mark, with the seasonally adjusted June figure (from FGV) trending down at 85.9 (86.7 in May). At the same time, Brazil saw business confidence slide slightly in June, to 92.5 (from 94.2 in May).

Despite this, consumers—especially in some developed economies—continue to spend, while China has seen some deceleration. In the US, retail and food services sales rose by 0.6% in June to $720.1 billion, up from $715.5 billion in May. In contrast, eurozone retail sales weakened in May, falling 0.7% month on month but increasing 1.8% year on year. In India the strength of domestic demand was underlined by figures from the Retail Association of India showing an 8% year-on-year retail sales increase in June.

In July, financial markets expectations for short- and long-term inflation edged up to 2.5%. In the United States, median inflation expectations declined slightly to 3.0% for the one-year-ahead horizon and remained stable at 3.0% and 2.6% for the three- and five-year horizons, respectively.

On the commodities markets, precious metals have continued one of their strongest growth runs since 2011, while other asset classes moved sideways in July, although gold prices remained largely flat. At the same time, copper prices have surged, driven by the US imposing a 50% tariff on imported copper and ongoing supply chain constraints. After a brief increase in June, overall energy markets calmed and resumed their downward trajectory. Headline agriculture prices remained stable in July; however, underlying categories experienced some volatility.

Inflation ticked up across the board, partly driven by higher import prices. However, the deflationary environment in China persists, while consumers in other emerging markets caught a break due to slowing price increases. Among the advanced economies, US headline inflation rose 2.7% year over year in June (up from 2.4% in May), while core inflation ticked up to 2.9% (annualized). Eurozone inflation has stabilized around the ECB’s 2% target, but services inflation remained elevated at 3.3% in June. UK inflation edged up to 3.6% in June, compared to 3.4% in May, with broad-based increases across most consumption categories.

Among the emerging economies, India’s headline consumer price inflation slowed for the eighth consecutive month, reaching 2.1% in July—the lowest reading since 2019. However, core inflation, which excludes the more volatile food and energy components, has been rising steadily since mid-2024 to reach 4.5%. In Brazil, inflation was slightly up, touching 5.35% in June, compared with 5.32% in May. Inflation remains above the central bank’s upper target limit of 4.50%. Russia’s headline inflation fell to 9.5% in June, with disinflation visible in all main categories. It is expected to continue to decline gradually towards year-end. In June, annual inflation in Mexico declined slightly to 4.3%, down from 4.4% in May.

Globally, both the manufacturing and services sectors expanded in June. That said, the manufacturing sector is giving off mixed signals across countries—some remain in contraction, while a few are expanding. The services sector appears to be much more resilient; however, most countries showed little to no change compared to May.

Taking a closer look at individual country indicators, the US showed mixed results with the industrial production index edging up to 104 in June, while the manufacturing purchasing managers’ index (PMI) fell to 49.5 in July (down from 52.0 in June), signaling contraction. Eurozone industrial production gained momentum in May, rising 1.7% month on month and 3.7% year on year, while the HCOB Flash Eurozone PMI rose to 51.0 in July (June: 50.6), although the manufacturing PMI was marginally down at 50.7, a four-month low, from 50.8 in June. UK manufacturing showed mild improvement but remained in contraction territory, with industrial production also declining.

Looking at indicators for the emerging economies, data from India’s PMI surveys point to further momentum in business activity. Demand-related indicators, including new export orders and domestic sales, showed strong expansion. Manufacturing output rose at its quickest pace in 14 months. Brazil’s manufacturing industry has been rebounding, with the Monthly Industrial Physical Production (PIM) Index climbing strongly from 99.2 in April to 106.9 in May (versus the neutral 100 line from January 2022). This was the result of a rise in the extractive industry, which saw a 9.2% rise during the period, while factory production increased 7.4%. Mexico’s manufacturing PMI remained in the contraction zone during June, with the S&P Global PMI falling to 46.3 from 46.7 in May. This marked a full year of deteriorating conditions, driven by sharp drops in new and international orders as clients delayed purchases. In turn, manufacturers reduced output, cut back on inputs, and lowered staffing.

Regional and Country Summary

US Q2 GDP expands 3% quarter on quarter; EU and US agree trade deal, setting US tariff on EU goods at 15%; UK signs India trade agreement.

United States

The US economy expanded by 3% in Q2 2025; however, interest rates remain high, inflation persists, and growth expectations are slowing.

The US economy expanded by 3% in Q2 2025; however, interest rates remain high, inflation persists, and growth expectations are slowing.

First GDP estimates for Q2 2025 show the economy grew 3% (quarter on quarter, annualized), primarily driven by household consumption and an improvement in net trade due to a significant decline in imports.

The Federal Reserve held interest rates steady for a seventh consecutive month, keeping the target range at 4.25%–4.5%, where it has remained since January. Despite mounting inflation pressures and slowing GDP forecasts, Fed officials still anticipate two rate cuts later in 2025. The central bank’s latest projections show inflation rising to 3.0%, GDP growth slowing to 1.4% (from 2.1%), and unemployment edging up to 4.5%.

Headline consumer price index (CPI) inflation rose 2.7% year over year in June (up from 2.4% in May), while core inflation ticked up to 2.9% (annualized). Median inflation expectations declined slightly to 3.0% for the one-year-ahead horizon and remained stable at 3.0% and 2.6% for the three- and five-year horizons, respectively.

US total nonfarm payroll employment changed little in July (+73,000)—the trend since April. Similarly, the unemployment rate, at 4.2%, also saw little change in July. However, U.S. Bureau Of Labor Statistics revisions for May and June were larger than normal. The change in total nonfarm payroll employment for May was revised down by 125,000, from +144,000 to +19,000, and the change for June was revised down by 133,000, from +147,000 to +14,000. Consumer confidence deteriorated—dropping by 5.4 points to 93.0, according to the Conference Board.

On the consumer front, retail and food services sales rose by 0.6% in June to $720.1 billion, up from $715.5 billion in May. Housing activity remained mixed: residential starts rose by 4.6% to 1.32 million units, completions dropped to 1.31 million, the 30-year fixed mortgage rate dipped slightly to 6.7%, and existing home sales declined by 2.7%.

Financial markets remained upbeat. The S&P 500 gained 5.0% in June, bringing its 12-month return to 13.6%, while the Dow Jones rose 4.3% and is up 3.6% year to date. Market volatility declined slightly, with the CBOE Volatility Index averaging 16.8 (down from 18.6 in May).

Industrial activity also showed mixed results: the industrial production index edged up to 104 in June, but the manufacturing PMI fell to 49.5 in July (down from 52.0 in June), signaling contraction. Conversely, the services PMI improved to 55.2 from 52.9.

The US trade deficit widened by 18.7% in May, reaching $71.5 billion. Exports fell by $11.6 billion to $279.0 billion, while imports edged down by $0.3 billion to $350.5 billion.

Among trade policy developments, the US announced that it has reached new trade deals with the EU and Japan. In both cases deals establish new tariffs on most exports to the US at a rate of 15%. The deal with Europe also includes a commitment to purchase $750 billion in US energy over the next three years.

The latest custom duties data shows that new tariffs increased the monthly import tax take from around $6.5 billion to $21.5 billion. If the current trajectory continues, new tariffs might bring around $250 billion to $300 billion into the government coffers in 2025.

Eurozone

EU and US agree trade deal; trade surplus rebounds in May; ECB maintains rates amid stable outlook; final green light for Bulgaria to adopt euro in 2026.

On July 27, the European Union and the United States announced they had reached a trade deal setting the US tariff on all EU goods at 15%—half the 30% rate previously threatened by the US. The “framework agreement” follows private talks between European Commission President Ursula von der Leyen and US president Donald Trump during a visit to his Turnberry golf resort in Scotland.

Inflation has stabilized around the ECB’s 2% target, but services inflation remained elevated at 3.3% in June. On July 24, the European Central Bank (ECB) decided to keep interest rates unchanged at 2%, pausing after a year of gradual policy easing. The ECB cited a stable inflation path and uncertainties around future trade relations with the United States as reasons for holding steady, signaling a cautious but confident stance on monetary policy.

The euro area’s trade surplus rose significantly in May, reaching €16.2 billion (April: €9.9 billion), driven largely by a rebound in the chemicals sector (surplus up from €22.0 billion to €24.3 billion) and a moderate increase in the machinery and vehicles surplus (from €12.1 billion to €12.9 billion). Exports remained stable at €243.0 billion, while imports declined by 7.3% month on month to €226.5 billion.

Industrial production gained momentum in May, rising 1.7% month on month and 3.7% year on year. Business sentiment showed modest improvement in July. The composite purchasing managers’ index (PMI) rose to 51.0 (June: 50.6), driven by gains in both the services PMI—51.2, up from 50.5—and manufacturing PMI, which was marginally down at 50.7, from 50.8.

However, construction output decreased by 1.7% on the month, though it remained 2.9% above the May 2024 level. The construction PMI declined further to 45.2 in June (May: 45.6), indicating continuing contraction in the sector.

Retail sales weakened in May, falling 0.7% month on month but increasing 1.8% year on year. Consumer confidence edged up by 0.6 points in July but remained well below its long-term average, highlighting continued caution among households.

On July 8, the European Parliament and the Council of the EU granted final approval for Bulgaria’s accession to the euro area, confirming that all legal and convergence criteria had been met. Bulgaria is set to adopt the euro on January 1, 2026, becoming the 21st member of the monetary union.

Looking ahead, modest gains in business sentiment and easing inflation may support continued growth, though headwinds from global trade tensions and sluggish domestic demand remain a concern.

United Kingdom

UK labor market continues to soften amid tentative consumer recovery and rising inflation.

The UK economy showed signs of resilience in June, with consumer spending rebounding by 0.9% month on month after a steep 2.8% decline in May. Confidence among households appears to be stabilizing, though it remains fragile, suggesting a tentative willingness to spend despite persistent cost pressures. Yet, behind this modest recovery lies a labor market that continues to show clear signs of cooling—raising concerns about the durability of the consumer rebound.

Unemployment climbed to 4.7% in the three months to May 2025, up from 3.7% in the same period two years earlier. There are now 2.3 unemployed individuals for every job vacancy, more than double the 1.0 ratio seen in 2022. This shift underscores a fundamental slackening in labor demand, a trend mirrored in the falling number of vacancies.

In the three months to June, total vacancies declined to 727,000, a sharp 44% drop from the 1.29 million recorded in 2022. While part of this decline is linked to structural shifts—particularly in occupations with high exposure to automation and AI—every major sector has seen a reduction in hiring. Employers are grappling with a mix of rising costs (including higher National Insurance contributions and minimum wage increases), regulatory uncertainty, and sluggish output growth.

The services sector, typically a key engine of job creation, posted its strongest growth in activity for ten months in June, driven by a surge in new orders. However, even in this area of relative strength, firms continue to trim staff—a reflection of cautious business sentiment amid a cooling demand outlook.

Manufacturing showed mild improvement but remained in contraction territory, with industrial production also declining. Despite firmer activity in some parts of the economy, hiring momentum is fading.

These shifts in the labor market are beginning to show up in pay packets. Nominal wage growth slowed to 5.0% in the three months to May, down from higher levels earlier in the year. Adjusted for inflation (CPIH—consumer price index including owner occupiers’ housing costs—at 4.0%), real wage growth has decelerated to just 1.0%, offering limited relief for households facing sustained price pressures.

Inflation edged up to 3.6% in June, compared to 3.4% in May, with broad-based increases across most consumption categories. Although consumer prices remain well below their 2022 peak, the trend is far from comforting for the Bank of England, which kept interest rates on hold at 4.25% in July, continuing its “wait and see” stance.

On the trade front, the UK’s trade deficit for goods and services narrowed to £6 billion in May, as exports outpaced imports, but the broader trajectory remains negative. House price growth continued at around 2.5% year on year, though this rate has steadily decelerated.
Financial markets remained stable, with the FTSE 100 rising 1.6% in July, extending gains from the previous month. The pound held steady against the US dollar, trading around $1.35 = £1, though performance was mixed against other currencies.

Meanwhile, public finances showed minor improvement, with total government debt declining slightly to £2.98 trillion in June.

King Charles held talks with Indian Prime Minister Narendra Modi on July 24, following signing of a free trade deal by UK Prime Minister Sir Keir Starmer earlier in the day. Originally announced in May, the agreement will shrink levies on UK exports such as whisky, aerospace, electricals, medical devices, and luxury cars. Average tariffs for UK exports to India will reduce from 15% to 3%. Three years in the making, the agreement is expected to increase UK GDP by £4.8 billion annually.

China’s GDP achieves 5.2% year-on-year growth rate; India’s headline consumer inflation lowest since 2019 but core inflation on the rise; Brazil hikes Selic rate to 15%.

China

China’s economy maintained strong momentum in Q2, with GDP expanding by 5.2% and outperforming market expectations; investment growth softened while trade picked up pace; real estate transactions continued to shrink.

In the second quarter of 2025, China’s GDP reported a resilient growth rate of 5.2% year on year, almost in line with the pace of growth in Q1 (5.4%). The annual target was set at 5.0% earlier this year by the government. Consumption accounted for most of the growth in GDP (52.3%), followed by investment (24.7%) and net exports (23.0%). By sector, the industrial sector’s GDP growth slowed to 4.8% year on year from 5.9% in Q1. However, in the services sector GDP growth rose to 5.7%, from 5.3% in Q1.

In the second quarter, fixed-asset investment growth edged down to 2.1%, from 4.2% in the previous quarter. Growth deceleration was recorded across sectors: Investment growth in manufacturing, real estate, and infrastructure declined to 6.7%, –12.5%, and 4.0% respectively in Q2, from 9.1%, –10.0%, and 5.8% in Q1. Private investment sentiment remained weak, with a slower growth rate of –1.1% in Q2, compared with 0.4% in Q1.

Growth in the real estate market continued to be negative during the second quarter. On the demand side, sales revenue for new residential properties declined −9.9% in Q2 (–0.9% in Q1). On the supply side, floor space started fell −15.9% in Q2, compared to a –24.3% contraction in Q1.

In Q2, new credit decreased to RMB 7.6 trillion, down from RMB 15.2 trillion in Q1. However, it still recorded a year-on-year rise of 44.5% in Q2. Total social financing reached RMB 430.2 trillion by June, marking an 8.9% year-on-year increase.

The overall surveyed urban unemployment rate decreased slightly to 5.0% in June (5.2% in March). The youth unemployment rate was down to 14.5% in June (16.5% in March).

In the second quarter, cross-border trade experienced a recovery, registering a year-on-year growth rate of 3.1%, compared to 0.2% in Q1. Specifically, exports growth remained stable at 6.0%, compared with 5.7% in Q1. Meanwhile, the contraction in imports reduced significantly, from –7.0% in Q1 to –0.9% in Q2.

According to data released by the Ministry of Commerce, foreign direct investment inflows to China were significantly down at –21.9% in the second quarter compared with the same period last year (–10.8% in Q1).

In late 2025, the People’s Bank of China and other state entities re-emphasized the importance of domestic demand. They announced 19 measures to support consumption, especially in home appliances, passenger vehicles, and services consumption. However, detailed financial support has not been announced.

On July 28, China announced a nationwide childcare subsidy program offering families 3,600 yuan ($503) a year for each child under three, as part of broader efforts to support families and encourage childbirth.

India

India’s economy remains strong, supported by expanding consumer activity and easing inflation, bolstering growth in both manufacturing and services sectors; financial markets more volatile.

Headline consumer price inflation slowed for the eighth consecutive month, reaching 2.1% in July—the lowest reading since 2019. However, core inflation, which excludes the more volatile food and energy components, has been rising steadily since mid-2024 to reach 4.5%. The uptick was driven largely by the “personal care and effects” category, which recorded its third-highest level since measurements began in 2012. The strength of domestic demand was reinforced by figures from the Retail Association of India showing an 8% year-on-year retail sales increase in June. Importantly, growth was broad-based, with all retail categories registering gains, suggesting a healthy and diversified consumption base.

Survey data from the Purchasing Managers’ Index (PMI) point to further momentum in business activity. Demand-related indicators, including new export orders and domestic sales, showed strong expansion. Manufacturing output rose at its quickest pace in 14 months, while services recorded their fastest growth in ten months.

Credit conditions also supported economic activity. Banks reported increased demand for new loans alongside a general easing in lending standards, reflecting both improved business sentiment and household confidence. However, lenders signaled that demand could soften marginally in the coming quarter, given emerging caution around external risks and a potential moderation in investment appetite.

Both exports and imports fell at similar rates in June, keeping the trade deficit broadly stable at around US $20 billion. The recent 25% tariff on goods exported to the US, along with the possibility of additional secondary tariffs hinted at by the US administration, have heightened trade policy uncertainty, particularly for exporters in key manufacturing subsectors.

Industrial production data painted a more mixed picture. Annual growth slowed, and output fell by 0.8% compared with the previous month. Manufacturing and mining were the main drags, while electricity generation provided a bright spot, increasing over the month and offsetting some of the weakness elsewhere.

Monetary policy remained unchanged, with the Reserve Bank of India holding interest rates steady, signaling a wait-and-see approach as inflation and growth trends diverge. On the currency markets, the rupee depreciated modestly by 0.25% against the US dollar in July (relative to June), reflecting both global dollar strength and modest capital outflows.

Capital markets were more turbulent over the month, with average equity gains only modest. Performance was uneven across sectors: consumer durables and healthcare companies delivered notable positive contributions, while technology stocks underperformed, acting as a drag on broader indexes. The divergence highlights shifting market sentiment as investors weigh domestic growth resilience against external headwinds and tighter global financial conditions.

Following an initial announcement in May, India signed a trade deal with the UK on July 24, anticipated to eventually boost exports to the UK by 25%.

Brazil

Recent results indicate a complex dynamic for both financial markets and the real economy.

Inflation was slightly up, touching 5.35% in June, compared with 5.32% in May. Inflation remains above the central bank’s upper target limit of 4.50%.

The three-month moving average unemployment rate fell to 6.2% in May (from 6.6% in April), in a two-month downward trend.

On the financial markets, the average monthly real–US dollar exchange rate was BRL 5.54 per USD in June (versus BRL 5.66 in May). The Bovespa equities index rose in June, gaining 1.2% in value, while results up until June 23 are already presenting losses of 2.5%.

Consumer confidence remained below the neutral 100 mark, with the seasonally adjusted June figure (from FGV) trending down at 85.9 (86.7 in May). Business confidence also slid slightly to 92.5 (from 94.2 in May).

Brazil’s manufacturing industry is rebounding, as the Monthly Industrial Physical Production (PIM) Index increased strongly, climbing from 99.2 in April to 106.9 in May (versus the neutral 100 line from January 2022). This was the result of a rise in the extractive industry, which saw a 9.2% rise during the period, while factory production increased 7.4%.

The Monthly Services Survey (PMS) revenue index increased to 121.04 in May, from 118.2 in April (versus the neutral 100 line from January 2022). This was mirrored in the volume index, which rose to 107.87 (from 104.97). The largest revenue increase was in auxiliary financial activities (up 7.2% since April), followed by road cargo transportation (up 6%). Both sectors also saw the biggest volume increases, up 7% and 7.2% respectively. The surprise was in the air transportation segment, which saw a revenue drop of 4.9% accompanied by a volume increase of 7.3%.

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. Ahead of Copom’s next meeting, to be held on July 30, the markets are eying moves by the Fed and other international factors.

June’s trade balance recorded a surplus of US $5.8 billion, according to preliminary data, down from US $7.0 billion in May. The lower surplus was driven by a reduction in exports (US $29.1 billion in June, down from US $29.9 billion in May) accompanied by a rise in imports (US $23.2 billion in June, up from US $22.9 billion in May).

On July 9, the US Government imposed 50% tariffs on imports from Brazil. According to US President Donald Trump’s public statements, the move is designed to apply pressure in relation to domestic political issues in Brazil, notably former president Jair Bolsonaro’s trial in the Supreme Court for allegedly attempting a coup d’état. More recently, the US administration suspended travel visas for selected Supreme Court justices and family members. More sanctions are expected, as President Lula has set a confrontational tone in his public appearances.

Russia

Substantial slowing of economic growth underway in first half of 2025; inflation remains elevated amid monetary easing; federal budget deficit widens; current account surplus narrows.

Statistical authorities have confirmed last month’s preliminary GDP growth reading of 1.4% year on year, which marks a substantial slowdown from growth achieved in 2024. On a quarterly basis GDP shrank by 0.6%, the first decline since the invasion of Ukraine in 2022. Inventories and net exports were the two main drags on growth. Output is still supported by war-related sectors.

High-frequency indicators point at sequential growth resuming in Q2. In April–May the total output indicator grew by 1.4% year on year. Moreover, May’s reading of over 2.5% above the Q1 level confirms a technical recession has been avoided in the short-term. Overall industrial production across Q2 reversed the decline from Q1 with a recovery to the Q4 2024 level, despite a monthly decline in June. Retail sales grew moderately in May, as in previous months.

GDP forecasts have generally been lowered in recent months due to worsening economic imbalances and a fall in oil prices. The World Bank’s forecast published in June expects GDP growth of 1.4% this year. Oxford Economics’ July report predicts GDP growth of 1.0%, acknowledging loss of momentum recently and shrinking room for fiscal stimulation. Government investment and consumption will likely be the main growth drivers, amid increasing military spending. Despite some slowdown in real wages, the labor market will continue to support domestic consumption.

Headline inflation fell to 9.5% in June, with disinflation visible in all main categories. It is expected to continue to decline gradually towards year-end. The Central Bank of Russia began an easing cycle in June and continued in July with a 200-basis-points cut to 18.0%. The disinflationary environment opens the room for more easing in the coming months.

Accumulated federal budget revenues grew 3% year on year in the first half of the year, despite a fall in oil and gas receipts driven by lower prices. Total expenses grew by 20%. As a result, the federal budget deficit widened to 1.7% of GDP, approaching the annual target. Still, given current fiscal patterns and new sanctions imposed by the European Union potentially further constraining hydrocarbon revenues, there is a high risk of overshooting.

The year-to-date value of goods export across January–May fell by 6%, particularly weighed down by lower oil prices. Meanwhile, the value of imports increased by 1%. The trade balance remains in surplus but has shrunk 17% this year to $50 billion.

On July 28, during a visit to the UK, US President Donald Trump announced a significantly shorter deadline of 10–12 days for Russia to avoid secondary sanctions on oil exports if Moscow doesn’t move to end the war with Ukraine. He had originally announced a 50-day deadline on July 15.

Mexico

Mexico posted a trade surplus in June, while inflation declined slightly; Mexican peso appreciated against the US dollar.

In June, annual inflation in Mexico declined slightly to 4.3%, down from 4.4% in May. On the currency front, the peso appreciated against the US dollar, strengthening from MXN 19.4 = USD 1 in May to MXN 19.0 in June.

Mexico’s manufacturing purchasing managers’ index (PMI) remained in the contraction zone during June, with the S&P Global PMI falling to 46.3 from 46.7 in May. This marked a full year of deteriorating conditions, driven by sharp drops in new and international orders as clients delayed purchases. In turn, manufacturers reduced output, cut back on inputs, and lowered staffing.

In the labor market, total unemployment remained stable at 2.65% in June. However, formal employment declined by approximately 46,400 jobs.

Mexico recorded a trade surplus of $514 million in June, as exports declined to $54.0 billion (down from $55.5 billion in May), while imports were down to $53.5 billion (from $54.4 billion). In June 2025, Mexico’s total exports fell slightly by 0.1%, driven by a sharp drop in oil exports (−9.2%) and agricultural products (−6.5%), partially offset by a modest rise in manufacturing exports (+0.4%). Imports dropped more notably, by 0.8%, mainly due to reduced purchases of petroleum-related goods and intermediate inputs.

In July 2025, US President Donald Trump announced plans to impose 30% tariffs on all Mexican imports starting August 1 unless Mexico steps up efforts to fight fentanyl trafficking, reduce migration at the US border, and improve cooperation on security.

President Claudia Sheinbaum and Foreign Minister Alicia Bárcena pushed back, saying these are shared responsibilities, while calling on the US to curb the flow of guns into Mexico and address its own drug demand. The Mexican government stressed the need for dialogue over confrontation to avoid a trade war.

This comes amid heightened tensions over Mexico’s controversial judicial reform, which has raised alarms in Washington regarding the rule of law and investor protections. Rising cartel violence, record asylum applications, and a series of mass killings in Mexico have further fueled concerns among US policymakers.

Total Mexican exports to the US exceeded $450 billion in 2024, and a 30% blanket tariff could severely disrupt major industries. While the proposed 30% tariffs would apply broadly, they would largely target non USMCA compliant products. Goods that meet USMCA rules—covering about half of Mexico’s exports—are expected to remain exempt indefinitely, offering some relief to sectors such as automotive and electronics. Separately, 25% tariffs on steel and 10% on aluminum imports from Mexico have been in effect since early 2025, ending prior exemptions and piling pressure on Mexico’s heavy industry. Still, some sectors—such as tequila—remain shielded from tariffs under USMCA rules, offering limited protection in an otherwise uncertain trade environment.

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.