September’s global economic picture was defined by firmer activity but a renewed rise in long-term borrowing costs. Government bond yields have climbed to their highest levels since the global financial crisis as investors demand greater compensation for persistent inflation, large fiscal deficits, heavy debt issuance and geopolitical uncertainty. This higher “term premium” is steepening yield curves and means governments with substantial debt maturities in the next few years will face the higher-rate environment sooner.

The US economy remained resilient, with business activity expanding at its fastest pace in more than five years, 162,000 jobs added in August and third-quarter growth estimated at an annualised 5%. However, inflation and oil-price pressures unsettled markets, prompting the Federal Reserve to raise rates by 25 basis points to 3.75%–4%. The eurozone also showed improving activity, but higher energy costs lifted inflation, leading the European Central Bank to increase its deposit rate to 2.5%. Growth weakened in the UK, where fiscal constraints and sticky inflation limited scope for policy support. Japan faced rising yields, inflation and concern over the fiscal cost of its growth strategy.

Emerging-market conditions remained uneven. China’s growth slowed to 4.3% in the second quarter, reflecting weak consumption, property and investment, despite stronger industrial output. South Africa’s GDP contracted 0.2% in the second quarter, while higher oil prices and global yields darkened the outlook. The Reserve Bank raised the repo rate to 7.25% amid renewed inflation risks. Domestic weaknesses—including municipal financial failures, governance concerns and election uncertainty—added to the challenge, even as credible macroeconomic policy and stronger debt dynamics offer some protection against global spillovers.