The survey data were collected one week before the Iran–Israel conflict began. This article and the data and analysis it sets out should be treated as a perspective at a specific point in time, which seeks to help inform discussion.
The perceived risk from shifts in trade continues to grow, according to the results from our latest McKinsey Global Survey on economic conditions.1 Respondents to this quarter’s survey—which was in the field at the end of May through the first week in June—cite changes in trade policy or relationships as the top disruption to growth in the world economy, in their home economies, and even for their companies. Companies have already made changes as a result. Meanwhile, respondents’ long-standing focus on inflation is fading.
Respondents continue to report less positivity about the state of today’s economy, though their views on near-term economic prospects are more upbeat now than in March.
Executives increasingly focus on trade policy changes
Respondents increasingly point to changes in trade policy—which include tariffs—as a risk to the global economy, their countries’ economic growth, and their companies’ performance. In each case, the share citing these changes as a risk has more than doubled since last June.
Effects on the global economy
Over the past year, we have observed an increasing share of respondents who cite changes in trade policy or relationships as one of the biggest disruptions to the global economy. Now, changes in trade policy has become the most-cited risk to global growth (Exhibit 1). The latest results also show an increasing focus on supply chain disruptions—the share citing them (22 percent) is the largest since the December 2022 survey—while attention has shifted away from inflation.2
Effects on respondents’ countries
Trade policy changes continue to rise as a potential risk to growth in respondents’ countries (Exhibit 2). These changes are now top of mind in a greater number of regions: Trade ranks first as a risk to domestic growth among respondents in Asia–Pacific, Europe, Greater China, and North America; last quarter, that was true of only Greater China and North America. In India, the share pointing to trade changes has grown, but respondents continue to cite geopolitical instability most often. In other developing markets, domestic political conflicts are the most commonly cited concern.
Effects on respondents’ companies
At the company level, too, private sector respondents cite trade changes as a top disruptive force. The share saying trade is a top risk to their companies’ performance is more than twice as large as one year ago: 36 percent now say changes in the trade environment pose a risk to their companies’ growth, up from 17 percent in June 2024. At the same time, some (20 percent) say the opportunities around potential trade disruptions outweigh or far outweigh the risks.
When asked specifically about shifts in US trade policy, 65 percent of all respondents say their companies have made changes to their business, at least to some degree, as a result. Respondents in Greater China are the most likely to report these changes: 94 percent of those respondents report at least some changes in their companies (Exhibit 3).
Views of the global economy turn less favorable, but those at home hold steady
Respondents continue to report worsening conditions in the global economy but see conditions in their countries as more stable. Expectations for the next six months are more favorable, both for the world economy and at home.
A majority say that global economic conditions are worse now than six months ago, compared with just 32 percent who said this in December 2024 (Exhibit 4). But looking ahead, respondents are less likely than they were this past March to expect conditions to worsen in the next six months.
For the second quarter in a row, respondents overall are more likely to say conditions in their country worsened over the past six months than they are to say conditions improved. But respondents increasingly report stable conditions. The share saying that conditions have stayed the same has grown, compared with the previous two quarters: Nearly one-third of respondents report no change, up from 26 percent in March and December. Only in Greater China and India do we see meaningful changes in respondents’ assessments of conditions (Exhibit 5).
Views on their countries’ prospects remain more upbeat, with respondents still more likely to expect improving conditions over the next six months rather than worsening ones. Overall, they’re less likely than in March to expect conditions to worsen (31 percent now, compared with 37 percent last quarter) and more likely to expect no change.
Respondents in North America are the most downbeat across regions for the second quarter; they are by far the most likely to say conditions have declined in recent months (71 percent say so). They are also the most likely to expect conditions to decline further over the next six months. However, the share saying so has decreased since March: 55 percent now, compared with 69 percent three months ago.
Business leaders are prioritizing AI investment
Despite respondents’ assessments that trade changes are a top risk to growth, responding to changes in trade isn’t the biggest reported priority among companies’ leaders in any industry.3 The largest share of respondents say their leaders are prioritizing AI investments, and respondents more commonly report skills gaps and weak demand as high priorities than they do responding to trade policy changes—which was also true in the past two quarters.
Respondents working in technology, media, and telecommunications and in professional and financial services now most often say AI investment is a high priority for their companies’ business leaders (Exhibit 6). This is a change from last quarter, when respondents working in financial services said their leaders prioritized addressing financial-market volatility and those in other professional services most often pointed to skills gaps. Also, in March, respondents in energy and materials most often said leaders were focused on the transition to more environmentally sustainable energy sources—now, trade policy changes are top of mind.
ABOUT THE AUTHOR(S)
Sven Smit is the chair of insights and ecosystems, chair of the McKinsey Global Institute, and a senior partner in McKinsey’s Amsterdam office; Jeffrey Condon is a senior knowledge expert in the Atlanta office; and Krzysztof Kwiatkowski is a capabilities and insights expert in the Boston office.
This article was edited by Heather Hanselman, a senior editor in the Atlanta office.
Economic conditions outlook, March 2025
Uncertainty about geopolitics and trade now loom equally large as perceived economic disruptions, and surveyed executives express more caution about future conditions and company performance.
So much can change in three months. In the December edition of our quarterly McKinsey Global Survey on economic conditions, respondents’ expectations for the global economy were largely stable with the previous quarter and more positive than negative.4 Now, amid a spate of policy shifts, uncertainty permeates views on the economy in the latest survey. Respondents are now equally likely to see geopolitical instability and changes in trade policy or relationships as disruptive forces, both in the world economy and within their countries. Consequently, respondents report more cautious views this quarter than last quarter on nearly every measure. They are much more likely now than in December to say economic conditions—both globally and in their own countries—will decline, though views differ between respondents in emerging and developed economies. Respondents also are less likely than they have been in recent years to expect their organizations’ performance to improve in the months ahead (see sidebar, “Methodology note”).
Trade and geopolitics now carry equal heft as perceived disruptive forces
Changes in trade policy and relationships are now at the forefront, alongside geopolitical instability and conflicts, of perceived disruptions to the world economy as well as in respondents’ countries. Geopolitical instability has been the most-cited risk to the global economy for the past three years. But trade has caught up: The share of respondents citing trade-related changes as one of the biggest disruptions to the global economy has more than doubled over the past six months and is now equal to the share pointing to geopolitical instability (Exhibit 1).
Geopolitical instability and trade changes remain the top two most-cited risks to economies in respondents’ countries, as was true in December. But, unlike last quarter, now respondents in every region point to either geopolitics or trade as the biggest disruption.5
Both globally and at home, fewer respondents than in December cite transitions of political leadership as one of the biggest risks. In place of political transitions, increased economic volatility has become a top three most-cited risk to the global economy, while domestic political conflicts round out the top three for respondents’ economies. Inflation remains one of the top five perceived risks to the global economy as well as to respondents’ economies, as it has been since 2021.6
Respondents are cautious about current and future conditions
Over the past year, smaller shares of respondents have reported improvement in global economic conditions (Exhibit 2). For the first time since March 2023, the share saying conditions are worse than six months ago is larger than the share reporting improvement. Similarly, when asked about their own countries, about one-third of respondents say conditions have improved, the smallest share since September 2020.
What’s more, for the first time since December 2022, the share of respondents expecting global conditions to worsen over the next six months is larger than the share expecting improvement. Additionally, respondents see a global recession as increasingly likely. When we asked last quarter about four scenarios for the world economy in 2025 to 2026, 53 percent of respondents chose one of two recession scenarios as the most likely to occur. Now, nearly seven in ten rank a recession scenario as most likely (Exhibit 3). The largest share of all respondents, 61 percent, cite a demand-led recession, in which rising uncertainty causes consumer confidence to drop.
Respondents remain more optimistic about the state of their own economies than about the global economy. They continue to see improvement in their countries as more likely than declining conditions. However, the share expecting improvement (39 percent) is the smallest since June 2022, and half of respondents predict increasing unemployment in their countries—the largest share since September 2020. Respondents in North America are the most likely to expect growing unemployment: 77 percent predict it, compared with 48 percent in December.
Respondents in emerging economies remain more upbeat
A closer look at the survey findings reveals a growing gap between sentiments in emerging economies, where the views are brighter, and those in developed economies. Respondents in emerging economies are much more likely than peers in developed economies to say global economic conditions have improved (Exhibit 4), and they are half as likely to predict declining conditions in the months ahead. Furthermore, respondents in developed economies are twice as likely as those in emerging economies to say their countries’ economies have weakened in the past six months—and they are more than twice as likely to expect worsening conditions in the next six.
Respondents in emerging economies are much less likely than those in developed economies to predict a recession in the global economy. Like respondents in developed economies, they view geopolitical instability and changes in trade policy as the top two biggest disruptions to both global and domestic economies, but smaller shares of respondents in these regions point to those two issues. Instead, they are much more likely than other respondents to see volatility in the financial markets as a global and domestic risk.
Company leaders train their focus on geopolitics and potential changes in trade policy
Geopolitics are also top of mind as a potential disruption to companies’ performance. For the first time since March 2022, private sector respondents view geopolitical instability and conflicts as the most likely risk to companies’ growth.7 Geopolitical instability has overtaken weak demand—the most-cited risk in the previous three quarters—as a cited disruption, followed closely by changes in the trade environment and trade relationships. The share citing changes in trade as one of the biggest risks to company performance over the next 12 months is nearly double the share citing the same six months ago.
However, some respondents see potential disruptions in trade as more of an opportunity than a risk for their companies. Twenty-three percent say potential disruptions in trade and trade policy are more of an opportunity, while 27 percent see the opportunity and risk as equivalent. Respondents in North America and Europe are more likely to view trade changes as a risk, whereas respondents in Greater China are much more likely than others to view it as an opportunity for their organizations.
While respondents remain more likely to expect improvement than decreasing profits and demand, the share expecting positive changes is the smallest in years. Fifty-five percent expect their companies’ profits to increase in the next six months, the smallest share since September 2022. And while the share of respondents expecting customer demand for their companies’ products or services to increase is the smallest since June 2020 (46 percent expect increasing demand), they remain more than twice as likely to expect improving demand than decreasing demand. What’s more, the share expecting their companies’ workforces to grow is the smallest since the June 2020 survey.8
ABOUT THE AUTHOR(S)
Sven Smit is the chair of insights and ecosystems, chair of the McKinsey Global Institute, and a senior partner in McKinsey’s Amsterdam office; Jeffrey Condon is a senior knowledge expert in the Atlanta office; and Krzysztof Kwiatkowski is a capabilities and insights expert in the Boston office.
This article was edited by Heather Hanselman, a senior editor in the Atlanta office.
