The Organisation for Economic Co-operation and Development (OECD) has lowered its economic growth projections for both the United States and the global economy, citing trade barriers, geopolitical tensions, and policy uncertainty caused by President Donald Trump’s tariff measures.
Slower Growth Outlook
According to the latest OECD Economic Outlook report, global GDP growth is expected to slow from 3.2% in 2024 to 3.1% in 2025 and 3.0% in 2026. The U.S. economy, which had been projected to grow 2.4% in 2025 and 2.1% in 2026, is now expected to expand only 2.2% in 2025 and 1.6% in 2026.
OECD Secretary-General Mathias Cormann highlighted that uncertainty surrounding U.S. trade policy is a key factor in the revised projections, stating that the global economy would benefit from more predictable trade policies.
Impact of Tariffs on North America
The OECD's report assumes that the U.S. will raise tariffs on nearly all imports from Canada and Mexico by 25% starting in April. This assumption has led to sharp downward revisions in economic forecasts for both countries:
- Canada's GDP growth is now expected to be 0.7% in 2025, down from the previous 2.0% estimate.
- Mexico’s economy is now expected to shrink by 1.3%, compared to the previous projection of 1.2% growth.
The OECD stated that if tariffs were reversed or reduced, global growth would improve, and inflationary pressures would ease.
Inflation Remains a Concern
Alongside lower growth projections, the OECD also raised its inflation forecast. U.S. inflation is now expected to reach 2.8% in 2025, up from the previous 2.1% estimate. Similarly, inflation across G20 economies is forecasted to increase from 3.5% to 3.8%.
Cormann warned that persistent inflation could limit central banks' ability to cut interest rates, urging policymakers to remain cautious.
Trade Wars and Global Consequences
The OECD pointed to Trump’s ongoing trade battles as a major risk to global economic stability. The administration has been inconsistent on when tariffs will be implemented, which goods they will target, and how high they will be, creating further uncertainty.
Cormann noted that if trade restrictions continue, they will reduce global trade, increase costs for businesses and consumers, and drag down economic activity. He encouraged diplomatic solutions to avoid long-term economic damage.
Conclusion: The Road Ahead
As the U.S. and global economies adjust to higher trade barriers, the OECD report highlights the risks of prolonged trade conflicts. Investors and businesses will closely monitor whether the Trump administration softens its stance or whether retaliatory tariffs further disrupt economic growth.
