Across the globe, growth has slowed this year as higher tariffs and ongoing policy uncertainty slow investment and trade. Weaker global GDP growth is projected to persist this year and next. However, our analysis suggests that a reduction in global trade restrictions and less policy uncertainty could lift world GDP by 0.2 percentage points over the course of 2025 and 2026.
The largest component of GDP is C (consumption), which includes the purchase of durable and nondurable goods and services by households, such as food, jewelry, gasoline, and medical expenses. Another important component of GDP is I (investment). I includes expenditures on fixed assets by businesses and individuals, such as machinery and equipment. It also includes the value of any government investment in infrastructure.
While GDP is an important indicator of economic performance, it has limitations. For one, it relies on recorded transactions and official data, and it does not capture the extent of informal or unrecorded economic activity. In addition, it does not take into account certain phenomena that impact citizens’ well-being, such as pollution from traffic jams or the contribution of unpaid labor. As a result, alternative measures of economic development have emerged. These include the Human Development Index and the Better Life Index, which are designed to measure aspects of well-being that go beyond GDP.