According to the latest World Economic Outlook (WEO) released in October 2025, global economic growth remains steady yet fragile, reflecting a complex balance between resilient consumer demand and rising global risks. The International Monetary Fund (IMF) projects global growth at 3.2 percent in 2025, slightly easing to 3.1 percent in 2026, indicating a moderate but stable pace of recovery following a period of significant macroeconomic turbulence.
Advanced economies are expected to expand at 1.6 percent in both years, maintaining a slow but consistent trajectory as monetary tightening and policy uncertainty continue to temper investment sentiment. The United States, which has been a key driver of global recovery, is projected to grow by 2.0 percent in 2025 and remain stable at 2.1 percent in 2026. The United Kingdom’s growth is anticipated at 1.3 percent across both years, while the Euro Area is likely to experience a modest uptick, rising to 1.2 percent in 2025 before slightly easing to 1.1 percent in 2026. China’s economy, meanwhile, is forecasted to grow by 4.8 percent in 2025 and 4.2 percent in 2026, signaling a gradual slowdown as structural challenges persist.
The global outlook, however, remains tilted toward downside risks. Policymakers face growing challenges as trade protectionism, non-tariff barriers, and restrictive immigration policies threaten to disrupt supply chains, reduce productivity, and deepen labor shortages—especially in aging economies. Additionally, high borrowing costs and rollover risks continue to expose fiscal and financial vulnerabilities across both advanced and emerging markets.
The WEO warns that potential commodity price spikes driven by geopolitical tensions or climate shocks could disproportionately affect low-income and import-dependent countries, further complicating global inflation dynamics. On the upside, successful trade negotiations and renewed reform efforts could reduce uncertainty, lower tariffs, and enhance medium-term growth prospects.
In terms of business activity, the J.P. Morgan Global PMI Composite Output Index registered 52.4 in September 2025, down slightly from 52.9 in August. The reading remains consistent with an annualized global expansion rate of around 2.7 percent. While overall business sentiment improved, global employment levels remained stagnant, suggesting that recovery in the labor market continues to lag behind output growth.
Inflation remains a key concern for policymakers worldwide. The WEO projects global headline inflation at 4.2 percent in 2025, moderating to 3.7 percent in 2026. Price movements across major commodities have been mixed. The global energy price index fell by 0.5 percent, mainly due to a 5.2 percent drop in Australian coal prices, partially offset by a 2.2 percent rise in U.S. natural gas prices. In contrast, non-energy commodities rose by 1.0 percent, driven by increases in food (0.4 percent) and raw materials (0.5 percent).
Metal prices recorded a 2.9 percent increase, and precious metals surged by 9.3 percent amid renewed demand for safe-haven assets. Fertilizer prices declined globally, while beverage prices remained largely stable. The Food and Agriculture Organization (FAO) reported that its Food Price Index averaged 128.8 points in September 2025, slightly down from 129.7 in August. The decline was led by lower cereal, dairy, sugar, and vegetable oil prices, partially offset by a rise in meat prices. Despite being 3.4 percent higher than a year earlier, the index remains nearly 20 percent below its peak of March 2022.
Monetary policy adjustments continue to shape global financial conditions. In September 2025, the U.S. Federal Reserve cut its benchmark federal funds rate by 25 basis points, bringing it to a range of 4.00–4.25 percent, in an effort to support economic stability without reigniting inflationary pressures. The Weekly Economic Index stood at 2.51 percent for the week ending October 11, with a 13-week moving average of 2.42 percent, reflecting a steady momentum in U.S. economic activity.
For Pakistan, the external outlook appears cautiously optimistic as its major export markets—namely the U.S., U.K., China, and the Euro Area—continue to demonstrate resilience. The Composite Leading Indicator for these economies has improved compared to the previous month, with most indicators moving near or above their long-term potential levels. This improvement signals strengthened export prospects for Pakistan, potentially supporting its external sector and contributing to growth stabilization.
The global economic narrative entering 2026 is defined by cautious optimism—where moderate expansion is counterbalanced by persistent risks. Sustained policy coordination, structural reforms, and enhanced global cooperation remain essential to securing a stable and inclusive global recovery in the years ahead.
Follow the PakBanker Whatsapp Channel for updated across Pakistan’s banking ecosystem.