After a year dominated by concerns over trade and global turbulence, businesses are entering 2026 with more optimism—despite continued uncertainty. Indeed, business sentiment was more buoyant in the final quarter of 2025 than in previous quarters, according to the recent McKinsey Global Survey on economic conditions.
Executives were more upbeat about future economic expectations than they had been in previous 2025 surveys, with respondents expressing the brightest near-term expectations of the year—this in comparison with three previous quarters of largely negative assessments of current global economic and trade conditions (Exhibit 1). Moreover, for the first time in 2025, the survey recorded more respondents predicting improvement over the following six months versus those expecting worsening conditions.
Notably, survey respondents no longer see changes in trade policy as the foremost disruptor of business, although this remains a significant concern. Instead, they point to geopolitical instability as the principal risk. Investment in AI and gen AI continues to be the most reported high priority for business leaders to address, particularly in technology, media, and telecommunications and in service industries.
There is further optimism in the IMF’s January 2026 World Economic Outlook update: The IMF is projecting global growth at 3.3% for 2026 and 3.2% for the following year, a slight upward revision from the October 2025 update (Exhibit 2). It says that technology investment, fiscal and monetary support, accommodative financial conditions, and private sector adaptability have helped to offset trade policy shifts. At the same time, it warns that policymakers should restore fiscal buffers, preserve price and financial stability, reduce uncertainty, and implement structural reforms.
Looking back on 2025, we see that the year was one of mixed fortunes for economies around the world. The US economy grew strongly in 2025, with real GDP accelerating through midyear on higher consumer spending and exports. GDP for the third quarter of 2025 rose by 4.3% (annual rate) versus 3.8% in the second quarter. The real GDP increase reflected higher consumer spending, exports, and government expenditure that were partly offset by a decrease in investment. Meanwhile, the Chinese economy grew by approximately 5.0% in 2025, and India expanded by some 6.5% on an annual basis on the back of resilient services activity and domestic demand. By contrast, eurozone growth is expected to be 1.4% in 2025, while UK real GDP expanded in November, driven primarily by a rebound in production sectors, but remains modest.
In the US, consumer sentiment is trending down, dropping to 89.1 in December from November’s revised figure of 92.9. Nevertheless, November’s retail and food services sales (adjusted for seasonal variation and holiday and trading-day differences) were $735.9 billion, up 0.6% from October’s revised $731.4 billion. Overall, retail sales continue to grow across most countries, with some acceleration observed in November and December due to the holiday season.
Against this backdrop, central banks have been cutting interest rates to stimulate their economy, where they feel they have room for maneuver. Although central banks in Brazil, China, and the eurozone refrained from cutting rates, other major central banks delivered 25-basis-point cuts in December.
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Looking at prices, we see that inflation across developed economies remained broadly stable in December. Among the emerging economies, inflation in India and China picked up from near zero, while in Brazil and Russia it continued to decelerate. Overall inflation expectations have been oscillating around 2.2%.
In the US, in December, median inflation expectations increased at the one-year-ahead horizon, to 3.4% (from 3.2%), but remained steady at the three-year-ahead and five-year-ahead horizons—both at 3.0%. The consumer price index (CPI) increased 2.7% year over year in December—the same pace as November—while core inflation was slightly up, to 2.6% (annualized). Among other developed economies, eurozone inflation is lower, with the headline figure projected to decrease from 2.1% in 2025 to 1.9% in 2026 and 1.8% in 2027, before rising to 2.0% in 2028, mainly owing to energy inflation. Meanwhile, UK CPI ticked up to 3.2% in December, while core inflation was slightly higher at 3.3%, indicating that underlying pressures have moderated from postpandemic peaks but are not yet fully contained.
Among the emerging economies, the picture is also mixed. In China and India, inflation is low or negative. Consumer prices in China continued their recovery to 0.8% in December (0.7% in November), while core CPI was unchanged at 1.2%. Deflation in producer prices continued to ease slightly to –1.9% in December, from –2.2% in November. In India, CPI inflation was recorded at 1.33% year on year in December 2025 (provisional), while food inflation remained in contraction at –2.71% year on year. However, it’s a different story in Russia, where tight monetary policy is still required to achieve the Central Bank of Russia’s inflation target of 4%. Recently, inflation has slowed to 7% in November and 6% in December but a rise in VAT and regulated prices for municipal services will create upward pressure and has already started to boost expectations. In Brazil, inflation is more modest, touching 4.26% in December (versus 4.46% in November) and coming in below the central bank’s upper target limit of 4.50% for a second consecutive month. Mexico’s annual inflation declined to 3.7% in December, down from 3.8% in November, reinforcing the ongoing disinflationary trend.
On the commodities markets, gold exceeded $5,000 per ounce—a level never seen before—before cooling somewhat. At the same time, oil prices have eased as supply increased and demand remained broadly stable, with only modest growth expected in 2026. Food prices have also eased, driven mainly by dairy prices, which declined on seasonal increases in cream and milk availability.
Both manufacturing and services indicators ended the year on a weaker note, as growth rates of new orders and output eased. Manufacturing sectors around the world are either contracting or slowing down; companies do not see growth in new orders or employment, while stocks of purchases are declining. In parallel, services growth eased across most countries at the end of 2025. However, companies remain positive about 2026.
The US industrial production index decreased slightly to 102.3 in December. Similarly, S&P’s Manufacturing PMI fell to 51.8 in December 2025 (52.2 in November), the lowest in five months. However, in the eurozone, despite a marginal decline in the Economic Sentiment Indicator and the composite PMI at the end of 2025, the industrial production index is gradually improving. In India, business surveys pointed to continued expansion but moderating momentum as 2025 ended. The HSBC India Manufacturing PMI eased from 56.6 in November to 55.0 in December (still comfortably in expansion), indicating growth but at a slower pace amid competitive pressures and softer sales in some categories. In Brazil, manufacturing production has dropped: The monthly Industrial Production Index (IPI) decreased from 113.04 in October to 103.4 in November (although still above the neutral 100 line). The Mexico Manufacturing PMI fell from 47.3 in November to 46.1 in December, signaling a further deterioration in operating conditions.
On the services front, the US services PMI edged down to 52.5 (54.1 in November). Services activity in India also cooled but remained strong: The HSBC India Services PMI was at an 11-month low of 58.0 in December (down from November’s 59.8) as new business growth softened, while export demand held up better. Brazil’s Monthly Services Survey (PMS) revenue index slid slightly to 127.7 in November from 128.7 in October (staying above the neutral 100 line). This was mirrored in the volume index, which declined to 111.1 (from 112.8).
US total nonfarm payroll employment increased in December (+50,000) but has shown little change since April. The unemployment rate remained at 4.4%. Across the pond, the number of paid employees in the UK has been trending lower since 2024, while unemployment has remained broadly stable at 5.1%, with a renewed rise among workers aged over 50. In China, the overall surveyed urban unemployment rate stuck at 5.1% for a third consecutive month. The youth unemployment rate eased slightly to 16.5% in December (16.9% in November). Labor market conditions displayed mixed signals in Mexico. The unemployment rate rose to 2.7% in November, up from 2.6% in October. At the same time, formal employment reached a record high, with 22.8 million registered jobs in November.
Equity markets globally started 2026 on a strong note, with indexes rising and reaching record highs in most economies. The cost of capital moved sideways in January.
Export growth strengthened across most major economies through October 2025, while import growth was mixed over this period. Total seaborne volumes softened into November, while container throughput cooled after midyear strength. Logistics conditions remained broadly normal in November, with a modest uptick in global supply chain stress in December. Inbound spot freight rates also ticked up in December but remained well below mid-2025 highs. Outbound freight rates to Shanghai eased after June’s spike and stabilized into year-end.
In the US, the monthly deficit fell by 39.0% to $29.4 billion in October. Exports reached $302.0 billion, $7.8 billion more than in September, while October imports reached $331.4 billion, $11.0 billion less than in September. In China, cross-border trade (imports and exports) experienced a year-on-year growth rate of 6.2% in December, a rebound from the 4.3% increase seen the previous month. Export growth accelerated to 6.6% in December, from 5.9% in November, while imports also witnessed a recovery to 5.7% from November’s 1.9%. Mexico posted a trade surplus of US $663 million in November, as imports declined slightly more than exports, resulting in a positive balance despite a broad monthly contraction in trade flows.
A bold new book from the McKinsey Global Institute supports an optimistic view of progress and economic development over the coming decades. A Century of Plenty: A Story of Progress for Generations to Come (McKinsey Global Institute, January 2026) imagines a world in which every person enjoys at least Switzerland’s standards of living today—a hypothesis that the authors stress tested and concluded is physically possible.
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