The global economy is showing signs of cooling, with growth decelerating for the second consecutive month in March 2025, according to the latest analysis from S&P Global. The slowdown has been primarily driven by a continued moderation in the services sector, which has now lost momentum for two straight months. Despite a rebound in goods manufacturing—recorded at its fastest pace since June 2024—the overall expansion remains moderate, in part due to preemptive front-loading of orders ahead of anticipated U.S. tariff hikes.
While emerging economies continue to post moderate growth, advanced economies are bearing the brunt of this global deceleration. The United States, in particular, registered its weakest expansion since April 2024. Compounding the slowdown, employment levels declined in February for the first time in three months. This was largely attributed to layoffs in the manufacturing sector, despite an uptick in output, signaling cautious business sentiment and workforce resizing in response to evolving demand patterns.
Business confidence has taken a hit, plunging to its lowest levels since September 2024. Meanwhile, input cost inflation surged to a seven-month high just before the rollout of additional tariffs in March. This heightened cost pressure may translate into rising prices in the coming months, thereby fueling further inflationary concerns.
The J.P. Morgan Global PMI Composite Output Index dipped to 51.5 in February, down from 51.8 in January, aligning with a global economic growth rate of 2.2%. This is noticeably below the 3.0% growth posted in Q4 2024. Forward-looking indicators suggest that the pace of global growth could continue to moderate in the near term.
Interestingly, key export markets for Pakistan—such as the UK, US, Euro Area, and China—remain resilient, with their Composite Leading Indices (CLI) hovering above the critical threshold of 100. This has significantly contributed to Pakistan’s 7.2% goods export growth from July to February in FY2025, providing a silver lining amid global headwinds.
Inflation, while generally on a downward trajectory globally, continues to present mixed signals. The European Central Bank projects a decline in global inflation from 4.2% in 2024 to 2.0% by 2027. However, the expected inflation in 2025 has been revised upward due to the anticipated pass-through effects of tariffs, particularly in the U.S. and China. For 2026 and 2027, lower inflation projections reflect deflationary trends in China and an oversupply of goods.
Commodity prices remained mixed in February. The World Bank’s Pink Sheet noted a 4.2% drop in energy prices, mainly from lower coal and oil prices. Conversely, non-energy commodities like metals and fertilizers posted strong gains—7.4% for fertilizers and 6.6% for precious metals, with gold and silver leading the charge.
The FAO Food Price Index (FFPI) also climbed by 1.6% in February, marking an 8.2% year-on-year increase, although still significantly below the peak levels of March 2022. Notable gains were seen in sugar, dairy, and vegetable oils, while the meat index remained unchanged.
Geopolitical tensions, reconfigured trade alliances, and volatile trade policy dynamics continue to shape global trade. The reorientation of global supply chains offers both risks and opportunities—particularly for developing economies looking to capture shifting investment flows.
In the U.S., despite a 2.3% real GDP growth in Q4 2024, new data paints a more cautious picture. The Atlanta Fed recently forecasted a 2.8% contraction in real GDP, driven by declining consumer spending post-holiday and a sharp rise in imports before tariff implementation. Inflation indices, including CPI and PPI, rose in January amid rising food and energy costs. Yet, the Fed’s preferred inflation metric suggests the disinflation trend remains intact—for now.
However, political shifts under the Trump administration—including stricter immigration policies—have created uncertainty, especially for labor-intensive sectors such as agriculture, construction, and healthcare. Stock market volatility is also rising, with all three major U.S. indices—DJIA, S&P 500, and Nasdaq—finishing February in the red.
With Weekly Economic Index (WEI) dropping to 2.24% for the week ending March 1st from 2.43% the previous week, the outlook suggests a global economy in flux. Structural changes in trade, inflation pressures, and evolving economic policies will be pivotal in shaping the world economy through 2025 and beyond.