Major economy facing sharpest slowdown named
In its latest global outlook, released on Tuesday, the OECD said the world economy is heading into its weakest stretch since the Covid-19 pandemic. US growth is projected to slow from 2.8% in 2024 to 1.6% in 2025 and 1.5% in 2026. As recently as March, the OECD had expected a 2.2% expansion for next year.
'This reflects the substantial increase in the effective tariff rate on imports and retaliation from some trading partners, high economic policy uncertainty, a significant slowdown in net immigration, and a sizeable reduction in the federal workforce,' the OECD said.
Since returning to office in January, US President Donald Trump has imposed sweeping tariffs aimed at protecting domestic manufacturing. The campaign culminated on April 2 with 'Liberation Day' measures, including a blanket 10% levy on all imports and steeper rates for goods from China, Mexico, Canada, and EU member states, citing trade imbalances.
Some of the duties have since been paused to allow time for negotiations. Trump has defended the strategy as a means to reshore jobs to the US and reduce the country's trade deficit.
The OECD expects US inflation to rise to nearly 4% by end-2025 and remain above the Federal Reserve's 2% target into 2026 – likely delaying any interest rate cuts until next year. It also highlighted a 'notable cooling' in real GDP growth alongside rising inflation expectations.
Alvaro Pereira, the OECD's chief economist, has urged governments to strike deals to reduce trade barriers, warning of serious consequences if they fail. 'Otherwise, the growth impact is going to be quite significant,' he said, adding, 'This has massive repercussions for everyone.'
According to the report, global growth is projected at 2.9% in both 2025 and 2026 – below the 3%-plus pace seen every year since the pandemic-induced slump in 2020.
The Paris-based body has downgraded forecasts for nearly all major economies compared with its December outlook, warning that 'weakened economic prospects will be felt around the world, with almost no exception.'
Apart from the US, the slowdown is expected to be most pronounced in Canada, Mexico, and China.
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