OECD trims global outlook as Trump trade war hits US growth

Business Recorder

2 days ago

PARIS: Global economic growth is slowing more than expected only a few months ago as the fallout from the Trump administration's trade war takes a bigger toll on the U.S. economy, the OECD said on Tuesday, revising down its outlook.
The global economy is on course to slow from 3.3% last year to 2.9% in 2025 and 2026, the Organisation for Economic Cooperation and Development said, trimming its estimates from March for growth of 3.1% this year and 3.0% next year.
But the growth outlook would likely be even weaker if protectionism increases, further fuelling inflation, disrupting supply chains and rattling financial markets, the Paris-based organisation said in its latest Economic Outlook.
U.S. President Donald Trump's tariff announcements since he took office in January have already roiled financial markets and fuelled global economic uncertainty, forcing him to walk back some of his initial stances.
Last month, the U.S. and China agreed to a temporary truce to scale back tariffs, while Trump also postponed 50% duties on the European Union until July 9.
The OECD forecast the U.S. economy would grow only 1.6% this year and 1.5% next year, assuming for the purpose of making calculations that tariffs in place mid-May would remain so through the rest of 2025 and 2026.
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For 2025, the new forecast marked a sizeable cut as the organisation had previously expected the world's biggest economy would grow 2.2% this year and 1.6% next year.
While new tariffs may create incentives to manufacture in the United States, higher import prices would squeeze consumers' purchasing power and economic policy uncertainty would hold back corporate investment, the OECD warned.
Meanwhile, the higher tariff receipts would only partly offset revenues lost due to the extension of the 2017 Tax Cuts and Jobs Act, new tax cuts and weaker economic growth, it added.
Trump's sweeping tax cut and spending bill was expected to push the U.S. budget deficit to 8% of economic output by 2026, among the biggest fiscal shortfalls for a developed economy not at war.
As tariffs fuel inflation pressures, the Federal Reserve was seen keeping rates on hold through this year and then cutting the fed funds rate to 3.25-3.5% by the end of 2026.
In China, the fallout from the U.S. tariff hikes would be partly offset by government subsidies for a trade-in programme on consumer goods like mobile phones and appliances and increased welfare transfers, the OECD said.
It estimated the world's second-biggest economy, which is not an OECD member, would grow 4.7% this year and 4.3% in 2026, little changed from previous forecasts for 4.8% in 2025 and 4.4% in 2026.
The outlook for the euro area was unchanged from March with growth forecast this year at 1.0% and 1.2% next year, boosted by resilient labour markets and interest rate cuts while more public spending from Germany would buoy 2026 growth.
The UK outlook was a tad better than in March with growth forecast at 1.3% this year and 1.0% in 2026, revised marginallylower from March estimates for 1.4% in 2025 and 1.2% in 2026.