Standard & Poor’s Outlook for Global Economy: Fragile Recovery, Persistent Inflation Threaten 2026 Prospects

Standard & Poor’s has issued its Global Economic Outlook for 2025, revealing that its forecast for global real GDP growth between 2025 and 2027 remains largely unchanged as of the September update. However, this general picture conceals diverging revisions among major economies.

The agency has raised its growth forecasts for several key economies, including the United States, Japan, the United Kingdom, Brazil, and India. This upward revision is partly due to positive GDP results in Q2, as well as country-specific factors. Conversely, growth expectations have been downgraded for economies such as Canada, Germany, and Russia, primarily due to recent economic data and national conditions.

Global Economic Performance: A Mixed Outlook for 2025

On a global scale, the report notes that the second half of 2025 is expected to be weaker than the first, driven by a range of negative factors. Among these is the fading boost from pre-emptive tariff avoidance measures, alongside continued high uncertainty. However, recent Purchasing Managers’ Index (PMI) data from Standard & Poor’s Global suggests that economic activity may show greater resilience than expected in the short term.

What Does the Latest Inflation Data Reveal?

Regarding inflation, the report highlights signs of stagnation. Monthly figures indicate that the global consumer price inflation rate has remained just above 3% since February. Additionally, core inflation in the G5 economies has started to rise in recent months.

In July, core goods inflation in these economies continued its upward trend, rising by 2 percentage points from the lowest levels seen in mid-2024, with the United States standing out in particular. In contrast, the gradual decline in service-sector inflation within the group has stalled, with the U.S. again playing a major role.

Standard & Poor’s expects that the delayed effects of widespread monetary easing will support growth in most economies and regions throughout 2026. However, it warned that inflation could pose a significant obstacle to this path. The agency forecasts that headline inflation rates will be lower in 2026 compared to 2025, partly due to expected sharp declines in crude oil prices starting later this year.

Monetary Policy Outlook for 2025 and 2026

In terms of monetary policy, the report indicates that the U.S. Federal Reserve has resumed lowering interest rates, although it is proceeding cautiously. Weaker-than-expected employment data and recent revisions have paved the way for a 25-basis-point rate cut during the Federal Open Market Committee (FOMC) meeting on September 17, 2025.

While this marks the beginning of a series of rate cuts, markets are currently pricing in a much faster pace, anticipating further 25-basis-point cuts in the remaining meetings this year, bringing rates below the neutral range of 3.00%–3.25% by mid-2026.

However, Standard & Poor’s base scenario assumes that the Fed will reduce rates by 25 basis points at every other meeting to avoid the risk of inflation rising again. As a result, the neutral rate is not expected to be reached until late 2026.

PMI Data and Global Trade Outlook

The PMI data for August from Standard & Poor’s Global showed global improvement for the fourth consecutive month, though tempered with some caution. The composite global output index reached its highest level since mid-2024. The manufacturing sector, which had been struggling, showed some improvement, with production and new orders indices returning above the growth threshold of 50 points, though still near the expansion boundary.

However, the new export orders index, a key gauge of global trade growth, remained below 50, reflecting continued weakness in trade since the U.S. elections in November 2024. Business expectations for future output were weak, marking some of the lowest levels since the COVID-19 pandemic shock.

The report pointed out that the absence of a negative spiral driven by rising trade tensions and financial market disruptions is a reassuring sign. Nonetheless, it cautioned that businesses' confidence in future demand remains low.

Financial Vulnerabilities and Risks in Europe

Lastly, the report highlighted emerging financial vulnerabilities in Europe. The gap between 10-year French and German government bond yields has widened significantly, reaching levels similar to, or even higher than, those seen in Southern European countries. This is attributed to ongoing uncertainty regarding the stability of the French government, difficulties in passing the 2026 budget, and concerns about rising public sector deficits, which have exceeded 5% of GDP, making France the largest deficit holder in the Eurozone for 2025. Furthermore, public debt levels have increased, with France now ranking third after Greece and Italy.

In the United Kingdom, the report noted that financial and political challenges have driven 30-year government bond yields to their highest levels since the late 1990s. However, demand for these bonds in recent auctions remained strong, reflecting continued investor confidence despite these challenges.