S&P Global has released its May 2025 global economic outlook, maintaining its real GDP growth forecasts at 2.2% for 2025 and 2.4% for 2026. This update follows substantial downward revisions in previous months. The outlook acknowledges the recent de-escalation of tariff and trade-related risks, particularly the agreement between the US and China to reduce tariffs, while also highlighting potential uncertainties and lingering effects of past trade policy shifts.
The report notes that the US-China agreement had a significant near-term impact on financial and commodity markets, with equity indices, crude oil prices, and the US dollar experiencing a rebound. However, S&P Global cautions that the de-escalation could reverse if trade negotiations falter. Furthermore, sector-specific tariffs remain outside the agreement, and the effective US tariff rate is still significantly higher than pre-election levels. The damage to confidence stemming from the unpredictability of US trade policy is expected to persist, especially given ongoing investigations into potential tariff increases on key products.
While the reductions in US and Chinese tariffs were more rapid and extensive than initially anticipated in the May forecast, S&P Global’s growth projections for most of the world’s largest economies remain broadly stable. China’s projections have been slightly revised upward due to a stronger-than-expected start to the year and increased policy stimulus. This suggests a potential upside risk to baseline growth forecasts, although the global outlook remains cautious.
S&P Global’s Purchasing Managers Index (PMI) data indicates a weakening of growth momentum. The global composite output index fell to 50.8 in April, marking its third decline in four months and signaling below-potential global real GDP growth. This decline occurred despite a boost to manufacturing and trade from the front-loading of activity to avoid expected higher tariffs. April’s data on expected business conditions also deteriorated, suggesting further weakness in the global economic outlook, although the surveys have not yet captured the impact of the US-China trade agreement.
The report highlights the distorting effects of front-loading activity to avoid anticipated tariff increases. While US real GDP contracted in the first quarter of 2025 due to a surge in imports, final sales to domestic purchasers remained solid. The surge in US imports corresponded with a rise in exports to the US, temporarily boosting growth rates elsewhere. This front-running of trade shipments and inventory building could be extended by the pause in tariffs and the US-China agreement, increasing the likelihood of a subsequent correction and complicating the assessment of underlying growth momentum.
Despite the focus on tariff-related effects on goods prices, the report notes a more pronounced disinflation in services. The monthly consumer price inflation rate for services in the Group of Five (G5) economies dropped to 3.5% in February and March, the lowest rate since February 2022. Conversely, the G5 core goods inflation rate continued its gradual upward trend, reaching a one-year high of 0.6%. S&P Global’s PMI data suggests further gradual upward pressure on goods inflation rates.
US consumer price data from April showed little evidence of tariff-related effects, potentially due to firms drawing down inventories or temporarily reducing profit margins. However, these factors imply only a temporary reprieve from a tariff-induced pickup in core inflation. Service inflation continues to be the primary driver of overall inflation dynamics, with core US services inflation falling to its lowest level since November 2021. The 2025 consumer price inflation forecasts for many economies have been slightly lowered to reflect somewhat lower commodity price assumptions.
The report concludes that US dollar depreciation and improving inflation prospects point to more accommodative global financial conditions. The broad nominal effective dollar index compiled by the US Federal Reserve fell by approximately 6% between mid-January and early May. Receding concerns about currency weakness potentially open the door to earlier and more monetary policy easing outside of the US, although a sustained dollar rebound could limit the room for rate cuts. The analysis was conducted by Ken Wattret and published by S&P Global Market Intelligence.
