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The global economy in Q2 2025 entered a period of cautious recalibration, as major economies grappled with the lingering effects of past policy tightening, geopolitical fragmentation, and evolving inflation dynamics. While inflation showed signs of moderation, growth momentum remained weak across several regions, and monetary authorities maintained a delicate balancing act between supporting recovery and guarding against renewed inflationary pressures.
A Fragile Recovery Growth Momentum Softens Amid Global Headwinds Global growth in Q2 2025 remains uneven and tentative, reflecting the delayed effects of monetary tightening, ongoing geopolitical uncertainties, and structural weaknesses in key regions. In the United States, GDP contracted by –0.5% in Q1 2025 after a strong run in late 2024. Early indicators point to a modest rebound in Q2, though growth is likely to remain below 1% as consumer spending softens and inventory adjustments play out. The Euro Area continues to experience sluggish growth. After stagnating in Q3 and Q4 2024, it posted a mild uptick of 0.6% in Q1 2025. Forecasts suggest another marginal expansion in Q2, supported by improved industrial output in some member states, but constrained by weak household demand and external trade pressures. The United Kingdom is gradually emerging from stagnation, recording 0.0%, 0.1%, and 0.7% growth from Q3 2024 through Q1 2025. A continuation of modest gains is expected in Q2, buoyed by recovering services and easing inflation.In Asia, China’s quarterly growth eased to 1.2% in Q1 2025, down from 1.6% in Q4, driven by persistent real estate sector challenges and slower global demand. India, by contrast, remains a global growth leader, posting steady quarterly improvements 1.5% in Q3, 1.9% in Q4, and 2.0% in Q1 nderpinned by strong domestic investment and consumption.
Overall, global GDP growth is expected to h over between 1% and 1.5% in Q2 2025, continuing the subdued pace observed in Q1. The outlook remains vulnerable to high interest rates, supply chain shifts, and policy uncertainty across major economies.
Cooling but Not Conquered: Global Inflation Faces External Pressures Inflation continued to moderate in Q2 2025, but progress slowed as rising oil prices driven by OPEC+ cuts, Middle East tensions, and stronger demand from Asia rekindled cost pressures across global supply chains. This has begun to filter into transport, manufacturing, and utility prices, especially in energy-importing economies. In the U.S., inflation eased to 2.4%, nearing the Fed’s target, though core inflation in services and housing remains sticky. The Euro Area achieved its 2% target, but concerns linger over renewed energy-linked inflation. The UK, at 3.4%, continues to face elevated price pressures due to high wages and energy costs.China, in contrast, remains in mild deflation (–0.1%), reflecting weak domestic demand, though global input costs could gradually lift producer prices. In emerging markets, especially in Africa, the oil rebound has led to rising fuel and food transport costs, putting fresh upward pressure on inflation.In summary, while global inflation is no longer surging, its decline is losing pace. External shocks particularly from energy are complicating the disinflation outlook, prompting central banks to remain cautious and delay interest rate easing.
Shifting Gears: Central Banks Weigh Rate Cuts Amid Lingering Uncertainty. In Q2 2025, global monetary policy entered a transition phase, with most central banks maintaining high policy rates but signalling greater caution as inflation slows and growth weakens. While headline inflation has eased in several regions, core price pressures and external risks especially from oil have kept rate cuts on hold in major economies. The U.S. Federal Reserve kept its benchmark rate at 4.5%, citing a need for further evidence that inflation is sustainably declining. Although market participants had anticipated rate cuts by mid-year, the Fed has adopted a “wait-and-see” stance considering sticky services inflation and rising fuel costs. The European Central Bank (ECB) maintained its rate at 2.15%, with inflation at target but growth fragile. The ECB has begun preparing the ground for gradual policy normalization, though it remains cautious given recent energy price volatility. In the UK, with inflation still elevated at 3.4%, the Bank of England kept its rate at 4.25%, emphasizing the need to anchor inflation expectations. Wage growth and lingering price pressures have made policymakers reluctant to ease too soon. Meanwhile, China stands apart with a more accommodative stance. Its central bank held rates at 3.0%, amid ongoing deflation and weak domestic demand. With inflation below zero, Chinese authorities are focused on stimulus and credit easing to revive momentum.
The second quarter of 2025 marked a period of cautious optimism for Nigeria’s domestic economy. Building on the momentum of key policy reforms initiated in late 2023 and early 2024, macroeconomic indicators showed gradual but meaningful improvement. While structural challenges persist, positive trends in growth, external reserves, investor confidence, and fiscal discipline have begun to shape a more stable macroeconomic environment.
Moderate Recovery Continues Amid Domestic Constraints Nigeria's economic performance in Q2 2025 remained broadly positive, driven by improving oil sector dynamics, fiscal reform continuity, and increased investor confidence. Preliminary estimates suggest real GDP expanded by approximately 3.7% year-on-year in the first half of 2025. Growth was supported by both higher crude oil production—projected to reach 2.3 million barrels per day—and steady improvements in services, manufacturing, and ICT.A key development during the quarter was the renewed rise in global oil prices, which climbed back above $90 per barrel. This upturn provided a significant boost to Nigeria’s oil export revenues, foreign exchange inflows, and fiscal buffers, reinforcing macroeconomic stability and supporting the growth outlook. The oil price rally, alongside structural reforms, has further improved Nigeria’s external position and helped to ease domestic liquidity pressures.The Central Bank of Nigeria (CBN) maintained its strong outlook, projecting 4.17% GDP growth for 2025, based on the sustained impact of fuel subsidy removal, FX rate unification, and strengthening oil receipts. The World Bank and IMF maintained more conservative forecasts of 3.6% and 3.4%, respectively—still acknowledging the positive reform momentum while remaining cautious about inflationary pressures, debt servicing costs, and structural challenges in infrastructure and productivity. In addition, Nigeria’s creditworthiness was bolstered by Moody’s upgrade of its sovereign rating in May, which is expected to improve access to capital markets and reduce borrowing costs. With inflation beginning to moderate and fiscal reforms gaining traction, the outlook for the remainder of the year remains favorable, with fullyear growth expected to range between 3.4% and 4.2%, depending on the strength of policy implementation and global commodity trends.
From Surge to Slowdown - Nigeria’s Inflation Continue to EaseInflation in Nigeria showed a moderating trend throughout Q2 2025, reflecting the visible impact of ongoing monetary and fiscal reforms, as well as relative exchange rate stability. Headline inflation, which peaked at 34.80% in December 2024, dropped significantly by the end of Q1 2025 and continued to ease into Q2.From March to May 2025, headline inflation fell from 24.23% to 22.97%, marking a steady decline of over 1.2 percentage points within the quarter. Core inflation followed a similar path, easing from 24.43% in March to 22.28% by May. Food inflation, traditionally the most volatile component also softened, declining from 21.79% to 21.14%, though it remained relatively sticky due to ongoing logistical and supplyside constraints.Several macroeconomic activities and policy shifts contributed to the disinflationary momentum during the quarter:
• Tight monetary policy by the Central Bank of Nigeria (CBN) helped suppress demand-side pressures. The high-interest rate environment sustained since 2024 curbed credit expansion, slowing inflationary acceleration, especially in core components like housing, utilities, and transport.
• Exchange rate stability following the unification of official and parallel FX markets brought greater clarity to import pricing, helping to reduce cost-push inflation pressures across tradable goods, including food and household essentials.
• Improved oil earnings due to higher crude oil prices and better output levels boosted foreign exchange liquidity, contributing to naira stability and easing import cost pressures.
• On the fiscal side, the government’s continued restraint on deficit monetization and progress with subsidy reforms helped limit inflationary spillovers from fiscal operations. This supported the CBN’s disinflation efforts and signalled stronger macro policy coordination.
Despite these gains, structural challenges such as food supply bottlenecks, high transportation costs, and electricity tariff adjustments continue to exert upward pressure on prices—particularly in rural areas.In summary, Q2 2025 marked a period of measured disinflation in Nigeria, driven by policy reforms, tighter monetary conditions, and improving macroeconomic coordination. If these trends persist, inflation is expected to continue easing toward the mid-20% range in H2 2025, barring major external shocks or domestic supply disruptions.
Holding Steady Amid Evolving Fundamentals In Q2 2025, the Central Bank of Nigeria (CBN) adopted a data-driven and cautious monetary policy stance, maintaining a restrictive posture while acknowledging signs of macroeconomic improvement. At its May 2025 meeting, the Monetary Policy Committee (MPC) unanimously voted to hold key policy parameters, keeping the Monetary Policy Rate (MPR) at 27.50%, along with a Cash Reserve Ratio (CRR) of 50% for deposit money banks, and a Liquidity Ratio of 30%. This decision followed aggressive rate hikes earlier in the year intended to curb inflation and stabilize the exchange rate.The decision to pause was influenced by progressive improvements in key macroeconomic indicators, including a narrowing gap between the official and parallel exchange rates, increased external reserves (which rose to $38.9 billion by mid-May), and a continued easing in headline, food, and core inflation metrics. Headline inflation fell from 24.23% in March to 23.71% in April, with further softening expected as reforms take hold.The MPC acknowledged the impact of recent reforms such as the unification of exchange rates, subsidy removal, and efforts to enhance food supply and address insecurity in farming communities. These actions were noted to be supporting price moderation and contributing to better balance of payments performance.However, the Committee also highlighted persistent risks, including elevated electricity prices, continued FX demand pressures, and structural constraints. Additionally, the MPC expressed concern over the recent rise in global oil prices, which, while boosting Nigeria’s fiscal revenue in the short term, introduces volatility to import costs and domestic energy pricing.Members reaffirmed the stability of the financial system, citing progress in the ongoing banking sector recapitalization exercise and improvements in key banking sector indicators.
revenue in the short term, introduces volatility to import costs and domestic energy pricing.Members reaffirmed the stability of the financial system, citing progress in the ongoing banking sector recapitalization exercise and improvements in key banking sector indicators.
Nigerian University Pension Management Company Limited (NUPEMCO) is the licensed Pension Fund Administrator for the Nigerian University System.
