OECD Lowers Global Growth Forecast Amid Trade Concerns and Geopolitical Tensions
The Organisation for Economic Cooperation and Development (OECD) has revised its global growth projections for 2025 downwards, citing rising trade barriers and increasing uncertainty in both economic and geopolitical landscapes. On March 17, the OECD announced a cut in its growth forecast from 3.3% to 3.1%, attributing this downward trend to the tumultuous trade environment spurred by trade tensions following the re-election of US President Donald Trump.
The OECD noted that the implications of elevated trade barriers among several G20 economies, combined with heightened geopolitical uncertainty, are weighing heavily on both investment and household spending. Additionally, inflation rates across many countries are now expected to outpace previous estimates. Specifically, US growth is projected to fall from 2.4% to 2.2% in 2025, with a further decline to 1.6% in 2026, marking a drop of 0.5 percentage points from past forecasts.
In the eurozone, the growth outlook has similarly dimmed, dropping from 1.3% three months ago to a mere 1.0%. Nevertheless, the region is expected to show signs of recovery, with projections indicating a rise to 1.2% in 2026, up from 0.7% in 2024. In contrast, China is poised to maintain robust growth rates, projected at 4.8% in 2025 and 4.4% in 2026.
The OECD's analysis suggests that the trade wars ignited by President Trump’s protectionist agenda could elevate inflation levels beyond previously anticipated thresholds. Core inflation is expected to exceed central bank targets across multiple countries, including the United States, throughout 2026.
The organization emphasized that its forecasts considered recently imposed tariffs affecting trade between the US, Canada, and Mexico. However, the OECD did not account for several other critical trade tariffs, such as those on steel and aluminum or new duties involving the European Union and the ongoing tensions with China.
The OECD warned that significant risks linger, as potential tit-for-tat tariff actions between key global economies could further hinder growth and exacerbate inflationary pressures.
On a more favorable note, the OECD acknowledged that an increase in defense spending by European nations in reaction to perceived threats from Russia could provide a short-term boost to the global economy. However, this increase in defense expenditure could also impose longer-term fiscal pressures, adding complexities to future economic strategies.
In summary, the OECD's forecasts underscore a challenging road ahead for the global economy, marked by trade hostilities and uncertain political dynamics. The predictions call for vigilance among policymakers as they navigate these turbulent waters.
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