Global and U.S. Growth Projections Lowered
The Organisation for Economic Co-operation and Development (OECD) has revised its economic growth forecasts, predicting a slowdown in both the global economy and the U.S. economy. The new report highlights concerns over rising trade barriers, geopolitical tensions, and policy uncertainties impacting investment and consumer spending.
- Global GDP is expected to decline from 3.2% in 2024 to 3.1% in 2025 and 3.0% in 2026.
- U.S. economic growth is forecasted to fall from 2.2% in 2025 to 1.6% in 2026, compared to earlier estimates of 2.4% and 2.1%, respectively.
Trade Tariffs Impacting Economic Outlook
The OECD attributes this downward revision to newly announced tariff increases between the U.S., Canada, and Mexico, which are expected to raise import costs and slow economic activity.
- The report assumes that tariffs will rise by 25% on most goods traded between the U.S., Canada, and Mexico starting in April.
- Higher tariffs could lead to weaker economic growth and increased inflation.
- If fewer goods are affected by tariffs, economic performance could improve slightly but remain below earlier projections.
Canada and Mexico Face Steep Economic Declines
The Canadian and Mexican economies are expected to take a significant hit due to the tariffs:
- Canada’s growth is revised down to 0.7% from the earlier estimate of 2%.
- Mexico’s economy is now expected to contract by 1.3% instead of the previously estimated 1.2% growth.
Inflation Expected to Stay High
The OECD also warns that inflation will remain a concern, with prices rising more than previously expected due to trade policies and economic conditions.
- U.S. inflation is now projected to be 2.8% in 2025, up from the previous estimate of 2.1%.
- G20 economies’ inflation is expected to rise to 3.8%, compared to 3.5% in earlier estimates.
- Core inflation is expected to remain above central bank targets in several countries, including the United States.
Trade Policies Creating Market Uncertainty
The OECD highlights how recent U.S. trade policies and retaliatory tariffs from other nations have increased market uncertainty.
- Trump’s trade policies have seen continuous adjustments and negotiations, leading to instability in global markets.
- The OECD warns that if these policies continue, they will raise costs for businesses and consumers, reduce incomes, and weaken global trade activity.
- While the tariffs may increase government revenue, they will also slow economic growth and raise prices for imported goods.
Conclusion
The OECD’s latest report underscores the growing economic risks tied to trade barriers, inflation, and policy uncertainty. With weaker economic growth projections and higher inflation, businesses and consumers are likely to face financial challenges in the coming years. The global economy remains in a fragile state, with much depending on how trade policies evolve in the near future.
