Markets fluctuate but return to early April levels; first-quarter US GDP data indicates consumer spending and investment growth despite 0.3% contraction, while China and Europe outpace expectations.
Persistent high consumer prices and elevated levels of uncertainty continue to affect households, leading to low levels of overall consumer confidence in the US and beyond. Despite the uncertainty, leading indicators were above long-term trends across the main economies during March.
Economies are continuing to reduce interest rates, except Russia and Brazil, which have been raising rates to combat high inflation. On March 19, the Banco Central do Brasil’s Monetary Policy Committee (Copom) followed through on its earlier guidance, raising the Selic rate from 13.25% to 14.25%. The Central Bank of the Russian Federation, meanwhile, maintained its key interest rate at a high level: 21%. The US held rates steady at 4.25 to 4.50%, where they have remained since December. In contrast, the Reserve Bank of India (RBI) lowered key interest rates by 25 basis points on April 9, while the European Central Bank (ECB) made a similar cut on April 17.
Recent policy has weighed on growth in the US. Real GDP decreased at an annual rate of 0.3% in the first quarter of 2025, according to the advance estimate released by the US Bureau of Economic Analysis on April 30 (Exhibit 1). For comparison, the fourth quarter of 2024 saw real GDP increase by 2.4%. This first-quarter drop in real GDP primarily reflects an increase in imports, which are a subtraction in the GDP calculation, together with a fall in government spending.
In Europe, the euro area economy is expected to grow by 0.8% in 2025 and 1.2% in 2026 (a downward revision of two percentage points for 2025), according to the IMF’s April 2025 projections. This subdued growth is partially offset by Germany’s significant fiscal stimulus. However, other downside risks remain given weak export activity and ongoing investment challenges, partly attributable to increased trade policy uncertainties.
China’s GDP recorded a stronger-than-expected growth rate of 5.4% year over year in the first quarter of 2025—market consensus was around 5.2%. Consumption accounted for 51.7% of the GDP growth, trade for 39.5%, and investment for 8.7%.
US consumer confidence tumbled again in March—this time driven by stock market volatility and persistent inflation concerns. March’s US consumer confidence index reading (Conference Board) was down 7.2 points to reach 92.9 in April, its lowest point since 2022. In Brazil, consumer confidence remained below the neutral 100 mark, falling to 84.6 in March (from 85.6 in February). Declines in consumer confidence put the brakes on consumer spending, which continues to slow across the main economies
Overall, inflation expectations have continued within a 2.0 to 2.5% range. In March, median inflation expectations in the US increased by 0.5 percentage points to 3.6% at the one-year horizon.
Most commodity prices appeared stable in April, though significantly higher than before the pandemic. Food prices were broadly unchanged in March and remain some 23% above prepandemic levels. Energy prices moved sideways, with industrial metals also following a similar constant trend over recent weeks. However, the price of gold was trending above $3,000 during April.
Among developed economies, inflation continues to ease, showing a horizontal trend. It’s a similar situation among most surveyed emerging economies. In the US, the consumer price index (CPI) rose 2.4% over the 12 months ending in March, after increasing 2.8% over the 12 months ending in February. Core inflation decreased slightly to 2.8% (annualized). However, March saw median inflation expectations rise by 0.5 percentage points to 3.6% at the one-year horizon. Headline inflation in the eurozone eased to 2.2% in March, driven by a drop in energy inflation (–1.0%) and slowing core inflation (+2.4%) as services inflation cooled to 3.5%. UK CPI inflation fell to 2.6% in March, down from February’s 2.8%; core CPI rose by 3.4% in the 12 months to March 2025 (February 3.5%).
India’s retail inflation slipped to a more-than-five-year low of 3.34% in March as food prices continued to moderate. The RBI lowered the key policy interest rate by 25 basis points to 6.00% on April 9—its second consecutive cut this year. Similarly, Mexico’s annual inflation rate held steady at 3.8 in March. The Bank of Mexico lowered the benchmark interest rate by 50 basis points to 9.00% on March 27—its fifth cut in six months—in an effort to boost investment and counter signs of an economic slowdown. In Brazil, inflation accelerated to 5.48% in March, up from 4.83% in December, well above the Central Bank’s upper target limit of 4.50%.
The global purchasing managers’ indexes (PMIs) indicate that both the manufacturing and services sectors were in expansion territory in March, with services rebounding from a dip in February. However, country PMIs suggest that manufacturers remain cautious while demand slows and both input and output prices accelerate.
Taking a closer look at the developed economies, industrial activity in the US again gave out mixed signals, although they were somewhat positive. The industrial production index fell slightly to 103.9 in March (104.2 in February). The manufacturing PMI rose to 50.7 in April from 50.2 in March. In Europe, the industrial production index increased by 1.1% month over month and grew 0.6% year over year. The composite PMI dropped to 50.1 in April (50.9 in March); the manufacturing PMI rose to 51.2. Meanwhile, the seasonally adjusted S&P Global UK Manufacturing PMI fell to a 17-month low of 44.9 in March, down from 46.9 in February.
India’s manufacturing growth was strong, with the PMI edging up to 58.2 from 58.1 to sit at a level not seen for more than six months. Brazil’s manufacturing industry continued to contract early in the year, with the Monthly Industrial Physical Production Index (PIM) declining from 94.9 in January to 93.7 in February. In Mexico, the PMI dropped to 46.5 in March from 47.6 in February.
March also delivered a mixed picture for services across countries, though most still pointed to a rebound from the low February readings. In the US, the services PMI recorded 51.4 for April versus 54.4 in March. The eurozone services PMI declined to 49.7 in April (March: 51.0). By contrast, the S&P Global UK Services PMI registered 52.5 in March, up from 51.0 in February and the highest reading since August 2024.
Among emerging economies, India’s services PMI indicated solid growth, edging up from 58.5 last month to 58.7 in April. Brazil’s Monthly Services Survey (PMS) volume index declined to 113.5 in February (from 115.7 in January). This was mirrored in the revenues index, which dropped to 101 (from 102.7).
Unemployment rates remained stable across most surveyed economies. Among the developed economies, the US labor market showed modest changes: Unemployment was up slightly to 4.2% in March, while nonfarm payrolls rose by 228,000. In the UK, unemployment was estimated at 4.4%. Among the emerging economies, China saw the overall surveyed urban unemployment rate decrease to 5.2% in March (5.4% in February). In Brazil, the three-month moving average unemployment rate rose slightly to 6.8% in February (from 6.5% in January), while Mexico’s total unemployment was up slightly in February, by 0.04 percentage points to 2.65%.
The current uncertain economic, geopolitical, and trading environment has taken a toll on markets: Equity markets experienced a steep drop in April. In the US, the S&P 500 was down 5.8%, bringing the one-year return to –4.6%. The Dow Jones lost 4.2% over the month of April and fell to a 1.3% annual growth, with some commentators highlighting its worst April performance since 1932 during the Great Depression. The main volatility indexes climbed after April’s equity market crash. However, government bond yields appear to have slowed slightly for most economies over recent months. During March, the CBOE Volatility Index averaged 21.8, compared with 19.6 in February.
World trade volume growth was zero in February compared with the previous month, after a 0.7% increase in January. Total port trade remains below the year-ago level. March saw the Container Throughput Index drop to 135.3 points from 137.6 in February, with throughput in Europe and China showing the first effects of the announced US customs policy. Global supply chain pressure was near the historical average in March; however, there are high expectations of a rise in April.
US trade data did not change significantly: February exports climbed slightly to $278.5 billion, $8.0 billion more than January exports; February imports came in at $401.1 billion, $0.1 billion less than January’s imports. The monthly deficit decreased to $122.7 billion in February, a reduction of –6.1%. The eurozone trade surplus increased in February, up from €0.8 billion in January to €24.0 billion.
In the first quarter of the year, China’s cross-border trade slowed, registering a year-over-year growth rate of 0.2%, compared with 4.9% in the fourth quarter of 2024. Specifically, exports growth decelerated to 5.8%, down from 10.0% in the fourth quarter of 2024. However, exports staged a strong recovery in March, surging to a 12.4% increase from the −3.0% decline in February. Meanwhile, imports growth weakened to −7.0%, compared with −1.7% in the fourth quarter of 2024. Brazil’s March trade balance posted a surplus of $8.1 billion, a sharp turnaround from the $445 million deficit in February. Mexico posted a trade surplus of $2.2 billion in February, as exports rose to $49.2 billion from $44.4 billion in January, while imports declined to $47.0 billion from $49.0 billion.
“In a moment of tariffs, can the world find balance and trust to thrive?” highlights five signposts for business leaders to monitor:
- Trade frictions decrease, with remaining trade barriers focused on resiliency or national security.
- Inflation appears bounded, supported by central bank action.
- Consumer sentiment rebounds with continued spending in the US and increased spending in China and Europe.
- Business investment plans move forward, and foreign direct investment flows accordingly.
- Capital flows to businesses through functioning credit markets and resurgent equity issuance.
The article discusses the importance of business leaders taking steps to understand the range of opportunities and challenges created by the various economic outcomes ahead. Just as important, companies should be asking what strategic moves are needed to succeed in these new environments.
