Global Economics Intelligence executive summary, February 2026

All eyes are on the Middle East following an escalation of geopolitical tensions on February 28.¹“US and Israel launch ‘pre-emptive’ attack against Iran,” Reuters, February 28, 2026. Into March, global stock markets have wavered while oil and gas prices have risen following disruptions of petrochemical facilities and concerns over the potential blockage of key transportation routes through which ships normally pass each day carrying around a fifth of global oil supplies. At the same time, gold prices have jumped as investors seek a traditional safe haven. Recent economic volatility is in sharp contrast to the relative market stability experienced during the majority of February.

The IMF issued this statement on the situation in the Middle East on March 3: “We are closely monitoring developments in the Middle East. So far, we have observed disruptions to trade and economic activity, surges in energy prices, and volatility in financial markets. The situation remains highly fluid and adds to an already uncertain global economic environment. It is too early to assess the economic impact on the region and the global economy. That impact will depend on the extent and duration of the conflict.”

Meanwhile, growth among surveyed developed economies varies, topped by the US, where real GDP rose 2.2% in 2025 (2.8% in 2024) (Exhibit 1). This GDP expansion was supported by real consumer spending (up 2.7%) and real gross private domestic investment (up 2.0%). In the fourth quarter, real GDP rose 1.4%, down from the third quarter (4.4%), reflecting a decline in government spending and a deceleration in consumer spending. In Europe, eurozone GDP grew 0.3% quarter on quarter in fourth quarter 2025, matching the third quarter’s pace. Full-year 2025 growth reached 1.5%, the strongest growth rate in three years. The growth outlook for 2026 ranges from 1.1% (Oxford Economics) to 1.2% (ECB, European Commission), a slowdown from the previous year’s performance. Modest growth continued through year-end in the UK, where real GDP rose 0.1% month on month in December (0.2% in November). Growth in the three months to year-end was also 0.1%, driven by production, while services were flat and construction declined, leaving the expansion narrow. Full-year growth in 2025 was around 1.3%—slightly stronger than 2024 but still below the 1.5–2.0% prepandemic norm.

China’s government has set the country’s economic growth target for 2026 at around 4.5–5.0%. Meanwhile, Russia’s fourth quarter and 2025 full-year GDP growth was just 1% year on year, marking a slight pickup following a weaker third quarter. The full-year slowdown was broad-based, both across domestic and external demand. Labor shortages and strained capacity utilization limited the possibility of further increases in output, despite increased government spending and a widening deficit.

Consumer confidence generally remains subdued across economies, despite some improvement. In the United States, the Consumer Confidence Index (Conference Board) dropped to 84.5 in January, from December’s revised 94.2, its lowest level since May 2014. Meanwhile, UK consumer confidence edged higher but remains subdued. In Brazil, consumer confidence stayed below the neutral 100 mark, with FGV’s (Fundação Getulio Vargas) seasonally adjusted January reading slightly down at 87.3. 

US retail and food services sales in December (adjusted for seasonal variation and holiday and trading-day differences) were $735.0 billion, unchanged at 0.4% from November’s revised $735.1 billion. The UK, meanwhile, was a standout with retail sales volumes rising 1.9% month on month and 4.5% year on year, the strongest monthly gain since mid-2024, after a broadly flat late-2025 pattern.

Most central banks kept their policy rates unchanged in February, although Russia cut rates mid-month by 50 basis points, to 15.5%.

Inflation eased across developed economies, though Europe’s slowdown was partly driven by base effects from energy prices; core inflation, however, remains more elevated. Among the emerging economies, India saw inflation pick up to 2.7% in January, while inflation in China remained close to 0% ahead of the Chinese New Year. Overall, inflation expectations have recently eased across both markets and consumers.

Looking at individual developed economies, the US consumer price index (CPI) rose 2.4% year over year in January, below December’s 2.7%. Core inflation was down to 2.5% (annualized). In January, median inflation expectations dropped at the one-year-ahead horizon to 3.1%, from 3.4%. Eurozone headline inflation decreased to 1.7% in January, from 2% in December. This drop was largely explained by a base effect in energy prices after a spike in January 2025. Core inflation fell modestly in January to 2.2%, benefiting from softer growth momentum in services prices. The disinflationary trend is expected to remain in place. Similarly, UK inflation continued to cool in early 2026, albeit at a higher level. Headline CPI inflation fell from 3.3% in December to 3.0% in January, while core inflation declined from 3.2% to 3.1%. Among emerging economies, India’s retail inflation rose to 2.75% in January, the first reading under the new CPI series (base year 2024) and up from 1.33% in December.

On the commodities markets, precious metals have continued their surge, with both gold and silver at historical highs (Exhibit 2). After a brief dip in early February, following the nomination of Kevin Warsh to chair the Fed, gold prices have continued to rise as buyers seek a hedge against market volatility, with a peak immediately after the US military action against Iran. Meanwhile, industrial metals have also seen recent rises amid supply-side disruptions and low inventories, pushing up copper and aluminum prices. Prior to the military action, energy prices had been rising slightly after OPEC reaffirmed a pause in oil production increases for March, while US natural gas prices spiked amid adverse weather. Oil and gas prices have been surging since the onset of the Middle East conflict. Food prices were broadly stable in January 2026.

In the early part of the year, manufacturing and services growth picked up as international flows stabilized and export orders edged down only marginally. However, manufacturing remains uneven globally, with contraction persisting in some economies, while others see renewed expansion as supply chains normalize and sectoral demand improves. In contrast, services sectors remain positive across the board.

The US industrial production index increased slightly to 102.3 in January. However, the February S&P Manufacturing PMI (purchasing managers’ index) fell to 51.2 (52.4 in January), the lowest in seven months. It was a somewhat bright start to the year for the UK with flash surveys suggesting activity is moving into mild expansion with the composite PMI at 53.9 in February—its highest level since April 2024.

Among emerging economies, the HSBC India Manufacturing PMI rose to 56.9 in February 2026 from 55.4 in January, preliminary data showed. The reading signaled stronger operating conditions and marked a robust expansion, supported by sustained growth in output and new orders. In Mexico, recent PMI data indicate continued weakness in the manufacturing sector. The manufacturing PMI rose slightly to 46.3 in January, from 46.1 in December, but stayed below the 50.0 neutral threshold, signaling ongoing contractionary conditions. Factories faced their steepest drop in orders in seven months, triggering operational cutbacks. Export orders remained in contraction amid softer US demand, but there were signs that this may be moderating.

Looking at the latest services data, we see that the US services PMI was down to 52.3 in February (52.7 in January)—but still in the expansion zone. Similarly, in India the services PMI eased to 58.1 in February, from 58.5 the previous month.

US nonfarm payroll employment increased in January (+130,000); job gains were seen in healthcare, social assistance, and construction, while federal government and financial activities shed jobs. The unemployment rate changed little at 4.3%. Meanwhile, in the UK, the labor market is loosening incrementally. Unemployment rose to 5.2% (October–December) from around 4% in 2023–24, while the claimant count edged up to 4.4% in January. Employee numbers have also drifted lower into early 2026. On the demand side, vacancies remain around 725,000 after a prolonged decline.

In Brazil, the three-month moving average unemployment rate edged toward 5.1% in January, compared with December’s 5.2%. Similarly, in Mexico, unemployment inched down to 2.6% in December, from 2.7% in November. Formal employment trends point to weakening labor demand, declining from 22.8 million to 22.5 million registered jobs, with 320,692 formal jobs lost in December.

Equity markets were broadly stable throughout February, with Brazil and Japan outperforming as foreign investor inflows supported gains. However, volatility picked up across multiple markets. The cost of capital moved sideways in February.

Export growth broadened in 2025, led by Mexico and the US, with China strong and Europe stabilizing. Last year’s imports growth presented a slightly different picture, reflecting resilient emerging markets and US demand, but weaker momentum in China.

Seaborne trade softened into late 2025, with total volumes easing and container throughput cooling after midyear strength. At the same time, logistics conditions remained broadly normal in late 2025, with a slight uptick in supply chain stress in December. Inbound spot freight rates continued to normalize into 2026 from mid-2025 highs, while outbound freight rates to Shanghai eased after a June spike and stabilized going into the year-end.

On February 20, 2026, the US Supreme Court ruled that reciprocal tariffs imposed under the International Emergency Economic Powers Act exceeded presidential authority, in a 6–3 decision that removed President Donald Trump’s authority to impose tariffs without Congressional approval. In response, the administration announced import surcharges under Section 122 of the Trade Act of 1974 to replace the invalidated tariffs. US exports in December reached $287.3 billion, $5.0 billion less than in November; imports were $357.6 billion, $12.3 billion up on November. The monthly deficit rose 32.6% to $70.3 billion.

In the eurozone, meanwhile, net exports will remain under pressure from US tariffs, competition with Asian economies, and still uncertain global demand. The EU and India have signed a free trade agreement after many years of negotiations. In the UK, the trade deficit narrowed into year-end, with a goods shortfall partly offset by a stronger services surplus, though structural improvement remains limited.

Among emerging economies, India’s merchandise trade deficit widened significantly to $34.68 billion in January 2026, due to $71.24 billion in imports and $36.56 billion in exports, driven by surging gold, silver, fertilizers, and electronics imports. Brazil’s January trade balance posted a surplus of $4.3 billion, down from $9.3 billion in December. Mexico posted a $2.43 billion trade surplus in December 2025, with both exports and imports rising. The surplus was driven by stronger non-oil exports, particularly manufactured goods, which expanded faster than imports despite a decline in oil export values.

McKinsey’s Global Economics Intelligence (GEI) provides macroeconomic data and analysis of the world economy. Each monthly release includes an executive summary on global critical trends and risks, as well as focused insights on the latest national and regional developments. View the full report for February 2026 here. Detailed visualized data for the global economy, with focused reports on selected individual economies, are also provided as PDF downloads on McKinsey.com. The reports are available free to email subscribers and through the McKinsey Insights app. To add a name to our subscriber list, click here. GEI is a joint project of McKinsey’s Strategy & Corporate Finance Practice and the McKinsey Global Institute.

ABOUT THE AUTHOR(S)

Arvind Govindarajan is a partner in McKinsey’s Boston office, where Krzysztof Kwiatkowski is a capabilities and insights expert; Shubham Singhal is a senior partner in the Detroit office; Sven Smit is a senior partner emeritus and senior adviser in the Amsterdam office; and Jeffrey Condon is a senior knowledge expert in the Atlanta office.

The authors wish to thank Nick de Cent, as well as Alejandro Morales, Beatriz Oliveira, Darien Ghersinich, Erik Rong, Frances Matamoros, Gabriel Marini, José Álvares, Roman Büschgens, Sebastian Vargas, Tomasz Mataczynski, Valeria Valverde, and Vanshika Tandon for their contributions to this article.

The invasion of Ukraine continues to have deep human, as well as social and economic, impact across countries and sectors. The implications of the invasion are rapidly evolving and are inherently uncertain. As a result, this document and the data and analysis it sets out should be treated as a best-efforts perspective at a specific point in time, which seeks to help inform discussion and decisions taken by leaders of relevant organizations. The document does not set out economic or geopolitical forecasts and should not be treated as doing so. It also does not provide legal analysis, including but not limited to legal advice on sanctions or export control issues.

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.

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.

McKinsey’s Global Economics Intelligence (GEI) provides macroeconomic data and analysis of the world economy. Each monthly release includes an executive summary on global critical trends and risks, as well as focused insights on the latest national and regional developments. View the full report for January 2026 here. Detailed visualized data for the global economy, with focused reports on selected individual economies, are also provided as PDF downloads on McKinsey.com. The reports are available free to email subscribers and through the McKinsey Insights app. To add a name to our subscriber list, click here. GEI is a joint project of McKinsey’s Strategy & Corporate Finance Practice and the McKinsey Global Institute.