Economy, weather, and CO₂

U.S. macroeconomics
Our forecast this month assumes that real GDP will grow by 2.4% in 2025 and 2.2% in 2026, an upward revision of 0.3% and 0.2%, respectively, from last month. The revision is due to the release of the advance estimate of GDP by the U.S. Bureau of Economic Analysis for 4Q24 and the total year of 2024. The report showed real GDP increased at an annual rate of 2.3% in 4Q24, 0.5% higher than we assumed in last month’s forecast. Consumer spending remains a primary driver of GDP growth, growing at an annual rate of 3.2% in 4Q24.

The macroeconomic forecasts in the STEO are based on S&P Global’s macroeconomic model. We incorporate STEO energy price forecasts into the model to obtain the final macroeconomic assumptions. This month, that model assumed an increasing universal tariff that will reach 10% by the end of 2025 and an effective tariff rate of approximately 20% on U.S. imports from China. That model was released in mid-February and does not reflect current policy.

Our forecast assumes that the unemployment rate will rise to 4.2% by 4Q25, lower than the 4.3% assumed last month, and remain at that level through 4Q26. The downward revision to the unemployment rate was accompanied by an increase in inflation since last September, as measured by the year-over-year change in both the Consumer Price Index and Personal Consumption Expenditures index. As a result, the monetary policy assumptions that underlie our forecast were revised this month. S&P Global no longer assumes that the Federal Open Market Committee will reduce the target for the federal funds rate in June, with the only interest rate cut in 2025 now assumed to occur at the May meeting.

Higher U.S. interest rates tend to cause the U.S. dollar to appreciate, which increases the relative price of U.S. goods compared with foreign goods. As a result, real export growth was revised lower. A stronger U.S. dollar tends to increase imports, and continued consumer strength is assumed to support spending on both domestic and foreign goods and services. Our assumptions regarding real import growth are higher compared with last month, although real imports are still expected to decline through 2025. The upward revision to imports and the downward revision to exports both act to lower net exports and therefore GDP growth.

Emissions
We forecast U.S. energy-related carbon dioxide (CO₂) emissions to increase by 2% in 2025 and to decrease by 1% in 2026.

Coal, natural gas, and petroleum products all contribute to increasing emissions in 2025. Rising coal emissions are linked to an expected growth in coal-fired electricity generation. Natural gas emissions rise with increased consumption from residential and commercial buildings, mostly for space heating. Petroleum emissions grow with increased consumption of distillate fuel oil and jet fuel.

CO₂ emissions from coal decrease in 2026 as coal-fired generation returns to near-2024 levels. Natural gas emissions decline in 2026 mostly due to decreased use in residential and commercial buildings, along with slightly lower natural gas-fired electricity generation.

The rate at which CO₂ is emitted varies over the course of each year. For both 2025 and 2026, we forecast energy-related CO₂ emissions to be notably lower in the second quarter (Q2) compared with the rest of the year. This result is consistent with our historical emissions data and is largely attributable to relatively mild weather in Q2. Energy consumption and CO₂ emissions in Q2 are lower than Q1 and Q4 due to less demand for space heating in buildings, and they are lower than Q3 due to less demand for space cooling. Lower demand for space heating (indicated by heating degree days [HDD]) results in lower CO₂ emissions from natural gas, the most common heating fuel in the United States. Lower demand for space cooling (indicated by cooling degree days) results in lower electricity usage and, consequently, lower electricity-related emissions.

Weather
The United States experienced a colder-than-normal February, averaging around 700 HDDs, 22% more HDDs than in February 2024 and 4% more than the 10-year February average. Based on our current forecasts and data from the National Oceanic and Atmospheric Administration, we expect the United States will average about 550 HDDs in March—the end of the winter heating season—contributing to nearly 300 more HDDs in 1Q25 compared with 1Q24 and increasing fuel demand for space heating. We forecast the 2024–2025 winter heating season (November–March) to average 10% more heating degree days than last winter and 2% more than the 10-year winter average.