As 2025 draws to a close, global business activity is still expanding, but at a noticeably slower pace. Surveys of manufacturers and service companies across the United States, Europe, and parts of Asia show that higher trade barriers and uncertainty around global trade relationships are beginning to weigh on growth. This slowdown is not a surprise. It reflects the impact of tariffs that were deliberately imposed to correct long standing trade imbalances that had worked against the United States for decades.
What the Data Shows About Global Growth
In the United States, the composite purchasing managers index fell to 53.0 in December from 54.2, marking a six month low. While any reading above 50 still signals growth, the decline shows momentum is cooling. The index is based on responses from roughly 1,000 manufacturers and service providers and is widely used as a real time snapshot of economic conditions.
Similar patterns appeared overseas. The eurozone composite PMI slipped to 51.9 from 52.8, Japan, India, and Australia all reported slower growth, and India, while still leading major economies, recorded its slowest expansion in ten months. The United Kingdom stood out as an exception, with business activity rising as uncertainty tied to its government budget eased.
On a broader scale, the Organization for Economic Cooperation and Development reported that growth across the Group of 20 economies picked up to 0.8 percent in the three months through September, up from 0.7 percent in the prior quarter. Even that modest improvement, however, masks growing strains from trade friction and rising costs.
Tariffs and Rising Costs
S&P Global, which compiles the PMI surveys, has been direct about what is driving much of the slowdown. According to the firm, U.S. businesses are facing rising input costs that reflect higher tariffs announced by President Trump. The measure of input costs rose at the fastest pace since November 2022.
Chris Williamson, chief business economist at S&P Global, said higher prices are again being widely blamed on tariffs, noting that the impact first hit manufacturing and is now spreading into services. This spillover has broadened affordability challenges across the economy.
Bloomberg data reinforced this view. In December, the U.S. composite output index dropped to 53, while the prices paid gauge surged to 64.1, the highest level in more than three years. Williamson said inflation jumped sharply to its highest level since November 2022 and fed into one of the steepest increases in selling prices in nearly three years.
Employment and Demand Begin to Cool
The slowdown is not limited to output and prices. Employment growth softened in December, with job creation in services close to stalling. The composite employment index fell 1.4 points, moving closer to stagnation, and services employment was the weakest since April.
New orders also lost momentum. A composite gauge of orders showed the slowest growth since bookings shrank in April 2024, while growth in new business for services was the weakest since 2024. Separately, delayed government data showed the U.S. unemployment rate rose to 4.6 percent in November, the highest level in more than four years.
Europe and Asia Feel the Strain
In the eurozone, the slowdown was driven largely by a downturn in German manufacturing, though France saw modest improvement in industrial activity. Cyrus de la Rubia, chief economist at Hamburg Commercial Bank, said growth slowed at the end of the year due to a slight contraction in manufacturing and weaker momentum in services.
These figures arrive just as the European Central Bank considers its next steps. While the ECB is expected to hold rates steady and raise its growth forecast for next year, the recent data highlights the risks surrounding that outlook.
Concerns about the broader impact of tariffs have been voiced by the United Nations Conference on Trade and Development. Rebeca Grynspan, UNCTAD’s secretary general, warned of a cascade effect across a slowing global economy if steep trade taxes are enacted.
She said global investment has fallen back to financial crisis era levels and that UNCTAD now expects global growth of 2.3 percent, down from 2.8 percent. According to Grynspan, uncertainty is paralyzing business decisions because trade and investment depend on predictability and trust.
UNCTAD projects that the least developed countries could see exports fall by more than half if layered tariffs take full effect. In some cases, exports could drop by as much as 54 percent, raising risks to jobs and economic stability. Countries like Cambodia, Vietnam, and Malaysia, which benefited from supply chain shifts away from China, are now facing renewed pressure as tariff rules tighten around transshipment.
Why This Slowdown Was Expected
While critics point to slowing growth, rising prices, and global disruption, these outcomes were anticipated when the tariffs were put in place. The Trump administration argued that most U.S. trading relationships were deeply lopsided, hollowing out domestic industry and leaving American workers at a disadvantage. Tariffs were used as leverage to force a reset toward fairer terms.
The higher costs and uncertainty are part of that transition. Negotiating new trade agreements takes time, and as fairness returns to global trade, tariffs can be reduced gradually. In the meantime, the pressure encourages companies to rethink supply chains, invest domestically, and rebalance production in ways that strengthen the U.S. economy over the long run.
Projections suggest continued slower growth globally as trade relationships adjust. Federal Reserve officials have already cut interest rates three times to support a softening labor market, though they remain cautious due to lingering inflation pressures. Globally, growth is expected to remain below the pace of the last decade.
The current slowdown reflects a world in transition. While the effects are global, the strategy behind the tariffs is focused on correcting imbalances and restoring fairness. In that context, the short term drag on global business activity is not a failure of policy but a sign that long overdue changes are finally taking hold.
