Citing the effects of front-loading in expectation of rising tariffs, the Paris-based group updated its 2025 estimate for global growth and the majority of individual economies in revised projections released on Tuesday.
Trump Tariffs Threaten Growth
Although the global economy has shown more resilience than anticipated in recent months, the OECD said that it is still on track to suffer a significant setback as a result of Donald Trump’s trade policies.
Citing the effect of front-loading in expectation of rising tariffs, the Paris-based group updated its 2025 prediction for global growth and the majority of individual economies in revised projections released on Tuesday. While China benefitted from economic backing, the US also witnessed significant investment in AI.
However, the OECD made little changes to its forecasts for 2026, predicting that due to increased import taxes and more uncertainty, global GDP would decline to 2.9% from 3.2% this year and US expansion will slow to 1.5% from 1.8%.
Tariffs Create Global Uncertainty
The White House‘s 19.5% total effective tariff rate, the highest since 1933, has not yet had its full impact, according to authorities.
In an interview, OECD Chief Economist Alvaro Santos Pereira said, “It is a huge impact for the US economy and since the US economy is so crucial for the rest of the globe, this is having ramifications for many nations.”
Economists have found it difficult to assess the effects of Trump’s effort to alter the rules governing international trade because of the magnitude of the policy changes and the uncertainty surrounding their implementation.
OECD Warns on Trade Risks
Although it is still too early to tell if imports of advanced products would have a negative impact on actual activity, the OECD said that certain consumer pricing and spending decisions are already showing the impacts. Additionally, it noted that recent business surveys indicate indications of deceleration and that labor markets are deteriorating, with increasing unemployment and shrinking job opportunities.
“We know that greater trade is beneficial for development, so it is crucial that nations continue to negotiate and are able to obtain agreements to remove trade barriers,” Pereira said.
OECD Flags Inflation Risks
According to the OECD, most major countries should see a decrease in inflation as GDP slows and employment pressures lessen. However, it advised central banks to continue being “vigilant.”
As labor markets improve, the OECD anticipates a modest rate decrease by the Fed in the next year, provided that tariffs do not lead to wider inflation.
The group said that there are “substantial risks” to its short-term view overall, such as the potential for more trade restrictions or a return to price hikes.