OECD slashes U.S., global growth outlook for 2025; blames tariffs

UPI

2 days ago

June 3 (UPI) -- The Organization for Economic Cooperation and Development on Tuesday downgraded its 2025 growth forecasts for the U.S. economy and globally, slashing its estimates to 1.6% and 2.9 % -- assuming current trade tariffs remain unchanged.
In its biannual report on the health of the global economy, the OECD blamed the downward revision on what it said was an "increasingly challenging" environment with the slowdown concentrated in the tariff-impacted economies of North America and China.
Immediately prior to the imposition of tariffs by U.S. President Donald Trump on all of America's trading partners on April 2, the OECD was still projecting 2025 growth of 2.2%. Now it thinks U.S. inflation could rise to close to 4% near the end of this year, while growth will decelerate again in 2026 to 1.5%.
The OECD sees drastic slowdowns in Canada and Mexico, the United States' two largest trading partners, with GDP growth in Mexico falling by more than two-thirds to 0.4% in 2025, while Canada's economy will grow by just 1%.
Chinese GDP growth will slow to 4.7% this year and still further to 4.3% in 2026, while the European Union economy will pick up slightly, but only to a relatively anemic growth rate of 1%.
"The reasons why we downgraded almost everybody in our forecast is that trade uncertainty and economic policy uncertainty has reached unprecedented levels," OECD Chief Economist Alvaro Pereira told CNBC.
The report said a major jump in the level of trade barriers, tighter financial conditions, weakened business and consumer confidence and heightened policy uncertainty all posed significant threats to growth.
"If these trends continue, they could substantially dampen economic prospects. Rising trade costs -- particularly in countries implementing new tariffs -- are likely to fuel inflation, although this may be partly offset by softer commodity prices," the OECD said.
The report also warned of risks from trade wars or unpredictable policy, a chilling effect on consumer and corporate spending, ongoing "repricing of risk in financial markets," and worries inflation may stay higher for longer amid expectations of price hikes, particularly in countries facing higher trade costs or labor shortages.
However, the OECD said lifting trade barriers sooner rather than later could dramatically alter the gloomy prognosis, stimulating economic growth and holding inflation in check as would peaceful endings to wars in Ukraine and the Middle East.
In its last set of projections in December, the OECD forecast GDP in the United States would slow in 2025 but only to 2.4%, down from 2.8% in 2024, while it predicted the global economy would expand by 3.3%, up from 3.2% in 2024.
"The global economy has shifted from a period of resilient growth and declining inflation to a more uncertain path. Our latest economic outlook shows that today's policy uncertainty is weakening trade and investment, diminishing consumer and business confidence," said OECD Secretary-General Mathias Cormann.
He urged governments to resolve their international trade differences via constructive dialogue and refrain from actions that negatively impact the competition, innovation, and productivity benefits of the rules-based system of global trade.