The Organisation for Economic Co-operation and Development (OECD) lowered its forecast for economic growth both in the United States and worldwide, noting that US President Donald Trump’s tariffs on goods imported from other countries are a deterrent in terms of the impact on the upward dynamic of gross domestic product (GDP).
The mentioned organization, headquartered in Paris, predicts a global GDP rise of 3.1% in 2025. In this case, there is an expectation of a slowdown in the rate of increase in the mentioned indicator. In 2024, global GDP showed a growth of 3.2%. The OECD also predicts that the mentioned indicator will increase by 3% next year.
Moreover, it was noted that higher trade barriers in several G20 countries and increased geopolitical and policy uncertainty will put pressure on investment and household spending. The OECD said this in its interim Economic Outlook report published on Monday, March 17.
The specified organization predicts that the GDP of the United States in the current year will show growth of 2.2%. The OECD also expects the corresponding figure to increase by 1.6% next year.
It is worth mentioning that previous versions of the mentioned organization’s forecasts, published in December, provided that global GDP would show growth of 3.3% in 2025 and 2026. Also in this case, it was projected that the United States economy will rise by 2.4% in 2025. The previous version of the forecast for 2026 provided that US GDP would show growth of 2.1%.
Mathias Cormann, secretary-general of the OECD, said on Monday that uncertainty over trade policy is a major factor in the organization’s projections. In a media comment, he separately noted that the global economy will benefit from increased certainty regarding trade policy settings.
The OECD said in its report that its latest projections are based on the assumption that bilateral tariffs between the United States and Canada, and between the US and Mexico, will be raised by another 25 percentage points on almost all goods imports from April. It was noted that economic activity would be more intense if levies increases were lower or applied to fewer products. It was also underlined that the mentioned circumstances would have contributed to a lower inflation rate. At the same time, it was noted that global economic growth would still be weaker than initial expectations regarding the dynamic of this indicator.
The economic prospects of Canada and Mexico, faced with tariffs from the United States, have deteriorated sharply. The OECD predicts that Canada’s GDP will show growth of 0.7% in the current year. At the same time, the previous version of the forecast provided a 2% increase in the mentioned indicator. The OECD also predicts that Mexico’s GDP will decrease by 1.3% in 2025. In this case, there is a fundamental change in the initial forecast, which provided for the growth of the Mexican economy by 1.2% in the current year.
The OECD has also revised its inflation report. The organization stated that the price increase will be higher than initially expected, but will ease due to moderating economic growth.
Mathias Cormann, while talking to media representatives, noted that the OECD assumes that some trade-related measures, some tariff-related measures, and the related policy uncertainty certainly have an impact on inflation.
A report by the mentioned organization released on Monday highlighted that headline inflation in the United States is currently expected to be 2.8% in 2025. The December forecast stipulated that the mentioned indicator would be fixed at the 2.1% mark. It is also expected that the average reading of inflation in the G20 economies in 2025 will be 3.8%. The December forecast stipulated that the mentioned indicator would be fixed at the 3.5% mark.
The OECD also stated that core inflation in many countries, including the United States, is currently expected to remain above central banks’ targets next year. Mathias Cormann noted that central bankers should now remain vigilant. He stated that if inflation expectations remain anchored, then even in large economies such as the United States and the United Kingdom, there is scope for further monetary policy easing. Mathias Cormann also pointed out that in some major economies, the pace of inflation easing has slowed or inflation has picked back up.
The OECD linked most of its updated estimates of economic growth and inflation to geopolitical and trade tensions. The mentioned issues have dominated the markets in recent weeks and months. The OECD said that a series of announced trade policy measures would have implications for the economic outlook if sustained. In the relevant context, it refers to tariffs that were imposed or threatened by Donald Trump and retaliatory duties from the United States trading partners.
In recent weeks, Washington’s tariff policy has been marked by uncertainty. The relevant state of affairs is because negotiations and threats of retaliation are ongoing. Donald Trump has flipped-flopped over when tariffs will be imposed, which goods they will apply to, and how high they will be, although he insisted last week that he wasn’t going to bend at all.
The OECD stated that if the announced trade policy measures persist as projected, the new bilateral tariff rates will increase revenue for governments that are imposing them, but will be a drag on global activity, incomes, and regular tax revenues. Tariff rates also add to trade costs by increasing the prices of imported final goods for consumers and intermediate inputs for businesses.
Answering a question about whether he agrees with Donald Trump’s position that the trade policy concept implemented by Washington may provoke short-term losses, but will have long-term benefits for the United States economic system, Mathias Cormann said that a slowdown in global economic growth and an increase in inflation will have a flow on consequences for the US. According to Mr. Cormann, if trade tariffs were reversed, it would have a positive impact on global economic growth and therefore on the dynamic of the United States’ GDP.
Mathias Cormann stated that it is important to keep markets open and ensure their functioning, and to have a rules-based trading system in good working order. Also, in the relevant context, he separately noted that any issues should be resolved through cooperation and dialogue.
Moreover, Mr. Cormann stated that the OECD would encourage everyone to engage with each other to honestly and openly, work through the issues at hand and try and find the best possible way forward without having to resort to tariffs and other trade-restrictive measures.
The report of the mentioned organization published on Monday is an example of the fact that the trade war is a factor of more than sensitive pressure on the economy both at the regional level and on a global scale. The very possibility of a trade war even before the implementation of the relevant process in the practical plane is a kind of turbulence source. It is worth noting separately that the tightening of tariffs will worsen the geopolitical situation which has recently been characterized by a consistent increase in tension. It is possible that an active negotiation process will be launched at some point, which will help avoid a full-scale trade war, but so far the scenario of an escalation of economic confrontation is being observed. In the coming months, there will be more clarity about the prospects. It is worth noting that many experts claim that the trade war has already begun and any subsequent changes in the context of this process will only mean its scaling, without excluding the possibility of reaching agreements and improving the situation.
As we have reported earlier, JPMorgan Chase Hikes Euro Area’s 2025 Economic Growth Forecast.
