President Donald Trump took office on January 20 amid a flurry of executive orders focusing on multiple issues—many with significant economic implications. Notable instructions signed off by the returning president include measures to deport illegal migrants, an “America First” trade policy, relaxation of energy- and climate-related policies, and various orders addressing the development of artificial intelligence.
On February 1, the US president announced a 25% import tax on goods from North American neighbors Canada and Mexico (with a 10% tariff on Canadian energy), together with a 10% tariff on goods from China. After discussions between the US president and Canadian Prime Minister Justin Trudeau and Mexico’s President Claudia Sheinbaum, Trump paused the introduction of tariffs on their respective countries. However, a US tariff of 10% on Chinese imports did come into effect on February 4, followed the same day by an announcement from China of retaliatory action.
A key announcement from Trump was the $500 billion Stargate initiative, designed to expand the US artificial intelligence infrastructure. Led by OpenAI, SoftBank, and Oracle, Stargate is the largest AI infrastructure project in history. Importantly, AI is set to become a focal point for rivalry among global economic powers, not least because of the advent of China’s DeepSeek platform, which was released on January 20. As it gained traction, the new low-cost AI model rapidly became the most downloaded free app in the US. Once the markets caught up with the trend, it wiped $1 trillion off the leading US tech stock index at the start of the final week of January.
Composite leading indicators, which seek to identify turning points in economic activity approximately six months in advance, point to a potential slowdown in economic activity across all countries, except for the US and eurozone (Exhibit 1).
Despite lingering uncertainties, the outlook remains positive for modest domestic demand growth in the eurozone. In the UK, the treasury’s roundup of analysts’ growth forecasts in January sees GDP growing at 1.2% in 2025. In China, median forecasts from more than 60 financial institutions predict a GDP growth rate of 4.5% for 2025. On the Indian subcontinent, the Reserve Bank of India (RBI) has projected a GDP growth rate of 6.6% for the fiscal year 2024–25, reflecting a recovery trajectory following earlier economic slowdowns.
Overall, across surveyed economies, consumers remain cautious, with their confidence affected by relatively high food and energy prices. December saw the US consumer confidence index (Conference Board) drop to 104.7, from 111.7 in November. Consumer confidence in Brazil remains below the neutral 100 mark and fell to 92.0 in December (95.6 in November), reaching its lowest level since June. Mexico saw consumer confidence decline slightly in November to 105.0, compared with 105.3 in October.
Spending recorded a slight deceleration in November but rebounded in December, likely boosted by the holiday period. Retail sales in the two big powerhouse economies continue to be relatively buoyant, even if consumers remain largely downbeat.
Inflation expectations reached their highest level in about two years, as businesses and consumers weigh the possible impact of tariffs. Consumer prices in developed economies accelerated slightly in December, driven by higher energy prices and services costs. A similar trend can be observed in the developing economies, although China continues to fight deflation. Nevertheless, the European Central Bank (ECB) cut interest rates by 25 basis points, while the Fed kept them unchanged from last month (Exhibit 2). China’s central bank injected $300 billion to boost liquidity.
Most commodity prices rose over the past month. Oil prices picked up in January, partially because of higher demand and also due to new sanctions on Russia and Iran; European gas has been trading at around four times the price of its US counterpart.
In the US, the consumer price index (CPI) rose 2.9% for the 12 months ending in December, after rising 2.7% over the 12 months ending in November. Core inflation slightly increased to 3.2% (annualized) in December. Median inflation expectations were unchanged at 3.0% at the one-year-ahead horizon but increased to 3.0% from 2.6% at the three-year-ahead horizon, according to the December Survey of Consumer Expectations.
Eurozone headline inflation in December was up to 2.4%, mainly owing to base effects in energy prices (0.6% month over month). Core inflation stood at 2.7%. Services inflation was 4.0%, which continues to point to strong domestic price pressures, with wages growth still elevated (4.6% in the third quarter of 2024).
In Brazil, inflation fell slightly to 4.83% in December 2024 (4.87% in November), decreasing for the first time since August but remaining above the central bank’s target upper limit of 4.50% for a third consecutive month. Mexico saw the annual inflation rate drop to 4.2% in December (from 4.6% in November), its lowest in nine months.
Between manufacturing and services, the tale of two sectors continues: The end of the year brought a contraction in the manufacturing sector, while services saw an acceleration in expansion. Overall production declined, accompanied by decreasing employment and rising input costs.
In the US, the industrial production index increased to 103.2 in December (101.9 in November). January’s manufacturing purchasing managers’ index (PMI) edged up to 50.1 (from 49.4 in December). The eurozone industrial production index rose by 0.2% month over month but fell by 1.9% year over year in November. The eurozone’s composite PMI stood at 49.6 in December versus 48.3 in November, while the manufacturing PMI remained at 49.6. In the UK, the data from the industrial sector is less encouraging. A year-over-year decline of 1.8% in industrial production was recorded for November 2024, extending the downward trend observed since September 2023. Business confidence in Brazil, meanwhile, fell slightly to 97.3 in December (97.4 in November), decreasing for the second consecutive month. In December, Mexico’s manufacturing PMI dropped slightly from 49.9 in November to 49.8.
Services generally presented a brighter picture. Although the US services PMI dropped to 52.8 in January (56.8 in December), it remains well in the expansion zone. In the eurozone, the services PMI rose to 51.6 in December (November: 49.5), while in the UK, services sectors mostly strengthened in December, as new orders and consumer confidence improved.
In December, unemployment rates remained stable across most surveyed economies, but India saw a 0.3 percentage point rise. The US unemployment rate changed little at 4.1% in December (3.5% in January 2020). The UK’s unemployment rate edged up to 4.4% in October, a modest increase that could be an early warning sign of cooling economic activity. China’s surveyed urban unemployment rate was 5.1% in December 2024, down 0.1 percentage points from 2023. The adjusted youth unemployment rate, which excludes students, stood at 15.7% by the end of 2024, up from 14.9% in December 2023. In Brazil, the three-month moving average unemployment rate dropped to 6.1% in November (6.2% in October), down for the eighth consecutive time, and lower than the same period last year (7.4%). Finally, in Mexico, total unemployment increased by 0.24 percentage points in November, reaching 2.69%.
On the markets, the new year started with increased volatility, mainly due to turbulence in the world of AI. Government bonds were stable in January; Brazil has seen a significant decline in ten-year bond yields, but these remain elevated.
World trade volumes increased by 0.4% in November, driven by growth across all trade flows in advanced economies and imports in emerging economies. Total port trade remained below the year-ago level but continued to recover in December 2024. In November, exports rose in the US and eurozone but fell in China and Brazil; imports also increased in the US and eurozone versus October. While December recorded a slight increase in supply chain pressures, the global logistics environment remained relatively stable, with conditions still more favorable than the long-term average.
November saw the US record $273.4 billion in exports, $7.1 billion above October’s figure. November imports reached $351.6 billion, $11.6 billion higher than in October. The monthly deficit increased by 6.2% to $78.2 billion in November. By contrast, the euro area surplus was up to €16.4 billion in November 2024, from €8.6 billion in October. Goods exports in November 2024 fell to €248.3 billion, compared with €254.0 billion in October. Imports were €231.9 billion, down by 16.3% month over month. China’s overall trade increased by 3.8% year over year in 2024, an improvement from the –5.0% decline in 2023. Exports grew by 5.9%, compared with a –4.7% decline in 2023, and imports rose by 1.1%, recovering from a –5.5% decline in 2023.
A 2025 update of the McKinsey Global Institute (MGI) report Geopolitics and the geometry of global trade finds that Association of Southeast Asian Nations (ASEAN) countries have benefited from the US shift away from direct trade with China, with economies such as Vietnam partly intermediating trade flows between China and the US. Mexico has also benefited, with the largest trade share gains in sectors such as transportation equipment and food and beverages. Vietnam has seen the largest gains in sectors where China lost the most share. Nevertheless, a significant proportion of the value exported by ASEAN nations benefits China: In 2023, about 25% of the value of Vietnam’s electronics exports was attributable to value originally added in China.
Meanwhile, a new MGI report, Dependency and depopulation? Confronting the consequences of a new demographic reality, explores the implications of falling fertility and increasing longevity. With two-thirds of the human population living in countries with fertility below the replacement rate of 2.1 children per family, populations in some major economies will fall by 20 to 50% by 2100, according to UN projections. Advanced economies, along with China, are set to experience a reduction in the proportion of working-age citizens as a share of the total population, from 67% today to 59% in 2050. The authors estimate that in China and the advanced economies, GDP per capita growth could slow by an average of 0.4% annually from 2023 to 2050, and by up to 0.8% in some countries, unless productivity growth increases by two to four times or people work one to five hours more per week.
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. View the full report for January 2025 here. 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 are 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 & Corporate Finance Practice and the McKinsey Global Institute.
