OECD cuts global growth forecasts on trade war risks

Global economic expansion is expected to slow over 2025 and 2026 as policy uncertainty hits investment and household consumption, according to the Organization for Economic Co-operation and Development (OECD), which cut its growth outlook on Monday.

After growing by 3.2% in 2024, worldwide GDP is expected to rise by 3.1% this year and 3.0% next year, the OECD said in its Interim Economic Outlook report.

The intergovernmental organisation had previously predicted a slight pick-up in growth to 3.3% over both 2025 and 2026.

Higher trade barriers in several G20 economies and increased policy uncertainty were cited as the main reasons for the downgrade, while inflation over the next two years is expected to be higher than previously expected.

The OECD said the escalation of "trade restrictive measures" presents a serious risk to the global economy. "An illustrative exercise, where bilateral tariffs are raised further on all non-commodity imports into the United States with corresponding increases in tariffs applied to non-commodity imports from the United States in all other countries, shows that global output could fall by around 0.3% by the third year, and global inflation could rise by 0.4 percentage points per annum on average over the first three years," the report predicted.

The US is expected to experience a significant slowdown from 2.8% GDP growth in 2024 to 2.2% and 1.6% in 2025 and 2026, with forecasts for the next two years cut by 0.2 percentage points (pp) and 0.5pp respectively.

Eurozone GDP growth is projected to pick up slightly from 0.7% in 2024 but remain "subdued", rising just 1.0% and 1.2% over the next two years, compared with earlier forecasts of 1.3% and 1.5% respectively.

The UK economy, meanwhile, should expand by by 1.4% and 1.2% over 2025 and 2026, up from 0.9% in 2024 but 0.3pp and 0.1pp below earlier estimates, respectively.