OECD cuts global growth outlook to 2.9% for 2025 due to trade war

Qatar Tribune

2 days ago

Agencies
Global economic growth is expected to slow down to 2.9 percent, the OECD said on Tuesday, slashing its earlier forecast and warning that US President Donald Trump's tariffs blitz will stifle the world economy, hitting the United States especially hard.
After 3.3 percent growth last year, the world economy is expected to expand by a 'modest' 2.9 percent in 2025 and 2026, according to the Paris-based Organisation for Economic Co-operation and Development (OECD).
In its previous report in March, the OECD forecasted growth to be 3.1 percentfor 2025 and 3 percent for 2026.Since then, Trump has launched a wave of tariffs rattling financial markets.'The global outlook is becoming increasingly challenging,' said the OECD, an economic policy group of 38 mostly wealthy countries.
It said 'substantial increases' in trade barriers, tighter financial conditions, weaker business and consumer confidence and heightened policy uncertainty will all have 'marked adverse effects on growth' if they persist.
The OECD downgraded its 2025 growth forecast for the US from 2.2 percentto 1.6 percent.
The world's biggest economy is expected to slow further next year to 1.5 percent Trump, who has insisted that the tariffs would spark a manufacturing revival and restore a US economic 'Golden Age,' posted on his Truth Social platform before the OECD report's publication: 'Because of Tariffs, our Economy is BOOMING!' The OECD holds a ministerial meeting in Paris on Tuesday and Wednesday, with US and EU trade negotiators expected to hold talks on the sidelines of the gathering after Trump threatened to hit the EU with 50 percent tariffs.
The Group of Seven advanced economies is also holding a meeting focused on trade.
'For everyone, including the US, the best option is that countries sit down and get an agreement,' OECD chief economist Alvaro Pereira said in an interview with Agence France-Presse (AFP).
'Avoiding further trade fragmentation is absolutely key in the next few months and years,' Pereira said.
Trump imposed a baseline tariff of 10% on imports from around the world in April.He unveiled higher tariffs on dozens of countries but has paused them until July to allow time for negotiations.
The US president has also imposed 25 percent tariffs on cars and plans to raise those on steel and aluminum to 50 percentas ofWednesday.
US slowdown In the OECD report, Pereira warned that 'weakened economic prospects will be felt around the world, with almost no exception.' He added, 'Lower growth and less trade will hit incomes and slow job growth.' The outlook 'has deteriorated' in the US after the economy expanded by a robust 2.8% last year, the report said.
The effective tariff rate on U.S. merchandise imports has gone from 2 percentin 2024 to 15.4 percent, the highest since 1938, the OECD said.
The higher rate and policy uncertainty 'will dent household consumption and business investment growth,' the report said.
The OECD also blamed 'high economic policy uncertainty, a significant slowdown in net immigration and a sizeable reduction in the federal workforce.' While annual inflation is expected to 'moderate' among the Group of 20 economies to 3.6 percentin 2025 and 3.2 percentin 2026, the US is 'an important exception.' US inflation is expected to accelerate to just under 4 percent by the end of the year, two times higher than the target for consumer price increases set by the Federal Reserve (Fed).
The OECD also slightly reduced its growth forecast for China – which was hit with triple-digit tariffs that have been temporarily lowered – from 4.8 percent to 4.7 percent this year.
Another country with a sizeable downgrade is Japan: The OECD cut the country's growth forecast from 1.1 percent to 0.7 percent. However, the outlook for the eurozone economy remains intact at 1 percent.
Türkiye's economy, on the other hand, is estimated to expand by 2.9 percentin 2025 and 3.1 percent in 2026, which is also down from the previous estimate of 3.1 percent for this year and 3.9 percent for 2026.
'There is the risk that protectionism and trade policy uncertainty will increase even further and that additional trade barriers might be introduced,' Pereira wrote.
'According to our simulations, additional tariffs would further reduce global growth prospects and fuel inflation, dampening global growth even more,' he said.