OECD warns global economy to slow to 2.9% as trade tensions and policy uncertainty deepen risks
The Organisation for Economic Cooperation and Development (OECD) revised its global growth forecast downward on Tuesday, citing the impact of US tariffs and trade policy uncertainty.
According to Reuters, the OECD lowered its projection for global economic growth to 2.9 percent for both 2025 and 2026, down from its March forecast of 3.1 percent for 2025 and 3.0 percent for 2026.
The OECD stated that if protectionist measures intensify, global growth could slow further due to rising inflation, supply chain disruptions, and financial market volatility.
During the presentation of the Economic Outlook, OECD Secretary General Mathias Cormann warned that more trade barriers or ongoing policy uncertainty would reduce growth prospects.
He said these actions would “likely push inflation higher in countries imposing tariffs.”
Cormann also warned that if the US increased bilateral tariffs by 10 percentage points relative to mid-May levels across all countries, global output would decline by about 0.3 percent over two years.
He called for “constructive dialogue to ensure a lasting resolution to current trade tensions.”
According to the OECD, US President Donald Trump's tariff policies since January have unsettled financial markets and contributed to economic uncertainty.
Last month, the US and China reached a temporary agreement to reduce tariffs, while Trump delayed the imposition of 50 percent duties on the European Union until July 9.
The OECD projected US economic growth would slow to 1.6 percent in 2025 and 1.5 percent in 2026, assuming tariffs remain at mid-May levels.
This marks a substantial downward revision from its March forecast, which expected growth of 2.2 percent in 2025 and 1.6 percent in 2026.
The OECD noted that while new tariffs may boost domestic manufacturing incentives, higher import costs could erode consumer purchasing power, and policy uncertainty could deter corporate investment.
It also highlighted that increased tariff revenues would only partially offset fiscal pressures from extending the 2017 Tax Cuts and Jobs Act, new tax reductions, and slower economic growth.
The OECD said the US budget deficit could reach 8 percent of GDP by 2026, one of the highest among advanced economies not in a conflict.
As tariffs add inflationary pressures, the Federal Reserve is expected to maintain interest rates through this year and cut the federal funds rate to between 3.25 and 3.5 percent by the end of 2026.
In China, the OECD said the impact of US tariffs would be partially offset by government subsidies for a trade-in programme on consumer goods like mobile phones and appliances, along with increased welfare transfers.
The OECD forecast China's economy to grow 4.7 percent in 2025 and 4.3 percent in 2026, close to its previous projections of 4.8 percent and 4.4 percent, respectively.
The euro area's outlook remained unchanged from March, with projected growth of 1.0 percent in 2025 and 1.2 percent in 2026.
The OECD cited resilient labour markets, interest rate cuts, and increased public spending in Germany as contributing factors to the region’s forecast.
