OECD Cuts Global Growth Forecast in Light of Tariff Threat
The global economy is projected to grow slower than previously expected this year, as the trade war started by the Trump administration has shaken business and consumer confidence, created a lot of uncertainty and added to inflationary pressures as prices are all but certain to rise in the current high-tariff environment.
In its latest Economic Outlook, published on Tuesday, the OECD slashed its global growth forecast for 2025 from 3.3 percent in December 2024 and 3.1 percent in March 2025 to just 2.9 percent, assuming that tariff rates effective as of mid-May will remain in place through 2026. Unsurprisingly, the U.S. and its main trade partners China, Canada and Mexico are expected to be most affected by the tariffs, with U.S. GDP growth expected to slow sharply from 2.8 percent in 2024 to 1.6 percent this year and 1.5 percent in 2026. This is down from December projections of 2.4 and 2.1 percent, highlighting the adverse effect that Trump’s tariff policy is expected to have on the American economy.
"The global economy has shifted from a period of resilient growth and declining inflation to a more uncertain path,” OECD Secretary-General Mathias Cormann said. “Our latest economic outlook shows that today’s policy uncertainty is weakening trade and investment, diminishing consumer and business confidence and curbing growth prospects." The effect of the new trade barriers is expected to be most severe through 2025, as global growth is expected to slow to 2.6 percent by the fourth quarter of this year, before gradually climbing back to 3.0 percent by the end of 2026.
“Policy has a crucial role to play to tackle uncertainty and boost growth,” the OECD’s chief economist Álvaro Pereira wrote in an editorial accompanying the report. “First and foremost, it is essential to avoid further trade fragmentation and trade barriers. Agreements to ease trade tensions and lower tariffs and other trade barriers will be instrumental to revive growth and investment and avoid rising prices,” Pereira said. If trade barriers aren’t lowered, he warned, the growth impact would be “quite significant” with “massive repercussions for everyone.”