Global economic outlook: March 2025

The proliferation of tariffs and related uncertainties raise the risk of a global hard landing. Measures of trade policy-related uncertainty have continued to soar to unprecedented heights while business surveys, including S&P Global’s Purchasing Managers Indices™ (PMIs®), now also show a loss of global growth momentum. Our global real GDP growth projection for 2025 has been cut to 2.5% in our March forecast round. This would be the weakest outcome since 2009, outside of the COVID-19 shock. A marginal pick-up in global growth is forecast in 2026, to 2.7%, reflecting a boost from additional fiscal stimulus in Europe. The risks to both years’ forecasts increasingly look to be on the downside absent a major shift in the US administration’s policy approach.

The largest reductions to our growth forecasts in 2025–26 are in the Americas. Several recent US indicators have pointed to considerably weaker growth in the first quarter of 2025 than we had previously forecast. More federal layoffs and higher import tariffs than previously assumed are additional near-term headwinds to growth. Consistent with an upward revision to our US consumer price inflation forecast for 2025, the US Federal Reserve is now expected to leave policy rates unchanged through most of 2025. Although futures markets incorporate earlier Fed easing than in our base case, this is only likely to be delivered in the event of more pronounced economic weakness than we expect. Canada is forecast to fall into recession in mid-2025 as trade policy developments hurt investment, household consumption and trade. For similar reasons, we now also forecast an annual contraction in Mexican real GDP this year.

Fiscal developments in Germany are a rare bright spot for eurozone growth prospects. The adage that it usually takes a crisis for Europe’s policy makers to get their act together looks to have been borne out by recent shifts on defense spending and Germany’s sea-change regarding fiscal stimulus. Reflecting these changes, we have revised up our growth forecasts for the eurozone, albeit only from 2026 and with some caution. The plans lack details, and eurozone monetary policy is likely to be less accommodative than previously expected, contributing to a stronger euro than previously forecast, while the threat of further increases in US tariffs on imports from the EU continues to loom.

S&P Global’s PMI surveys are indicative of weaker global growth. The global composite output index, a bellwether for global real GDP growth, fell to its weakest level in over a year in February. Moreover, the slide in incoming orders and diminishing backlogs of work signal further weakness ahead. While the manufacturing PMIs continued their recent improvement, they are likely to have been flattered by front-loading of activity to avoid higher future tariffs. Notable shifts in February’s national PMIs included a marked loss of momentum in the US, a deepening downturn in Canada, and still muted data in mainland China. The next round of “flash” PMI figures will be released on March 24.

Consumer price inflation rates for core goods continue to pick up. The monthly core goods inflation rate, which we calculate for the G5 group of economies, rose to its highest level for almost a year in January. While the supply chain indicators that we track continue to look relatively benign, manufacturing price indexes from our global PMIs rose in February. Given widespread tariff increases, further upward pressure is likely. Given this, any signs that the offsetting downward trend in services inflation is troughing would be a concern from a monetary policy easing perspective. Our consumer price inflation forecasts for 2025 have been revised upward across most of the world’s largest economies since the 2024 US elections. Mainland China is a notable exception.

Amid more volatile financial market conditions, the US dollar’s depreciation likely has further to go. Our measure of the real, trade-weighted dollar index reached its highest level since the mid-1980s in January and with a lot of good news already factored in, we had been predicting a change of direction. That said, the euro’s recent appreciation against the US dollar has been more pronounced than we had expected, due to the fiscal shift in Germany. In line with projected shifts in relative growth and interest rates, we expect the depreciating US dollar trend to continue. It could well be a bumpy ride. As the US administration appears, so far at least, to be relatively insensitive to financial market turbulence and economic disruption, more of the same looks like a reasonable assumption for the period ahead.

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This article was published by S&P Global Market Intelligence and not by S&P Global Ratings, which is a separately managed division of S&P Global.