Decline in Economic Growth Projections

The latest report from the Organisation for Economic Co-operation and Development (OECD) indicates that both global and U.S. economic growth are expected to be lower than earlier forecasts, largely due to the impact of proposed tariffs by the Trump administration.

According to the OECD’s interim Economic Outlook, global GDP growth is projected to gradually decrease from 3.2% in 2024 to 3.0% by 2026. The increase in trade barriers among G20 countries, combined with geopolitical uncertainties, is likely to dampen investment and consumer spending.

U.S. Economic Forecast Adjustments

The OECD estimates that U.S. GDP growth will slow down significantly, predicting rates of 2.2% for 2025 and 1.6% for 2026. This marks a revision from earlier projections released in December, which foresaw growth rates of 2.4% and 2.1% for those respective years.

Impact of Trade Policies

Mathias Cormann, the OECD Secretary-General, emphasized that uncertainty surrounding trade policies is a primary driver of the organization’s forecasts. He mentioned the necessity of improved certainty in trade policies for global economic stability, stating, “The global economy would benefit from increases in certainty when it comes to the trade policy settings.”

The OECD suggests these projections assume that tariffs between the U.S. and its neighbors, Canada and Mexico, will rise by an additional 25%. Should these tariffs be lower or less widespread, economic activity could improve and inflation ease, although overall growth would remain subpar compared to previous expectations.

Regional Economic Outlooks

Canada and Mexico, facing significant tariffs from the U.S., have seen their growth forecasts drastically altered. Canada’s expected growth has been reduced to 0.7% for this year, down from 2%. Mexico’s forecast now predicts a contraction of 1.3%, reversing an earlier forecast of 1.2% growth.

Inflation Forecasts and Trends

The OECD’s updated report has also revised its inflation predictions, noting higher expected price growth that will gradually taper off due to slower economic growth. Headline inflation in the U.S. is now anticipated at 2.8% for 2025, an increase from an earlier estimate of 2.1%. For G20 economies, the inflation forecast has risen from 3.5% to 3.8%.

Furthermore, the OECD noted that core inflation may remain above central bank targets in many nations, including the United States, into 2026. Cormann urged central bankers to stay vigilant in monitoring inflation trends.

The Link Between Trade Tensions and Economic Health

The OECD attributes much of the revisions in economic growth and inflation forecasts to ongoing geopolitical and trade tensions. The organization indicated that sustained trade policy measures would have significant implications for economic outlooks worldwide. Cormann pointed out that persistent tariffs raise government revenues but could hinder global economic activity, elevate consumer prices, and increase trade costs.

In dialogue regarding Trump’s assertion that trade policies may entail short-term challenges but lead to long-term benefits, Cormann remarked that reduced global economic growth and heightened inflation could have serious ramifications for the U.S. economy.

Promoting Open Markets

Cormann underscored the importance of maintaining open markets, advocating for a functional and rules-based trading system. He encouraged countries to collaboratively address trade issues without resorting to tariffs and trade-restrictive measures.