IGI Logo

The OECD has revised down its global economic growth forecast due to prolonged effects of U.S. trade policies under President Donald Trump. The global economy is now expected to grow by 2.9% in both 2025 and 2026, down from earlier projections. U.S. growth is forecast to slow significantly to 1.6% in 2025 and 1.5% in 2026, primarily due to tariff-induced inflation and reduced corporate investment. While China is mitigating the effects through subsidies, Europe's growth remains steady. The OECD also warned that escalating protectionism could worsen inflation, disrupt supply chains, and increase economic uncertainty, potentially leading to rate cuts by the Fed.

Key Highlight

* OECD cuts global growth forecast to 2.9% for 2025–26.

* U.S. GDP outlook lowered from 2.2% to 1.6% for 2025.

* Tariffs driving inflation, reducing purchasing power and investment.

* China counters tariff impacts with subsidies and welfare boosts.

* Euro area growth steady; UK slightly downgraded for 2026.

The Organisation for Economic Cooperation and Development (OECD) has revised down its global growth forecast, citing persistent economic strain from protectionist policies—most notably the Trump administration’s trade war. The global economy is now projected to slow from 3.3% in 2024 to 2.9% in both 2025 and 2026, down from previous estimates of 3.1% and 3.0%, respectively.

The United States faces the sharpest downward revision. Growth is expected to reach only 1.6% in 2025 and 1.5% in 2026, a notable drop from the earlier 2.2% forecast. The OECD attributes this to prolonged tariffs that are fuelling inflation and squeezing consumer purchasing power. Additionally, policy uncertainty is limiting corporate investment despite potential incentives to shift manufacturing back to U.S. soil.

Although tariffs generate some government revenue, this will only partially offset the financial impact of the 2017 tax cuts, new spending, and slowing growth. Consequently, the U.S. budget deficit is projected to hit 8% of GDP by 2026. The Federal Reserve, facing ongoing inflationary pressures, is expected to hold interest rates through 2025 before cutting to 3.25–3.5% by the end of 2026.

In contrast, China’s economy, though also affected by U.S. tariffs, is seeing support through government subsidies and welfare programs, keeping its growth forecast relatively stable at 4.7% in 2025 and 4.3% in 2026.

Meanwhile, the eurozone maintains its March projections of 1.0% growth in 2025 and 1.2% in 2026, supported by labor resilience and fiscal stimulus in Germany. The UK’s outlook is slightly reduced but remains positive.

Above views are of the author and not of the website kindly read disclaimer