March 17 (UPI) — The Organization for Economic Cooperation and Development on Monday downgraded its forecast for 2025 global growth by 0.2% to 3.1% due to mounting signs of weakness amid already slower growth and sticky inflation, as well as trade and geopolitical tensions.
The intergovernmental body had expected the global economy to expand at a faster pace than the 3.2% seen in 2024 but revised it down, blaming the slowdown on higher trade barriers in several G20 economies and increased policy uncertainty weighing on investment and household spending, according to its interim economic outlook report.
The downgrade was driven in large part by its projection that growth will weaken in all three of the world’s main engines of economic growth — the United States, the European Union and, to a lesser extent, China.
The OECD sees annual real GDP growth in the United States, the world’s largest economy, slowing sharply from its strong 2.8% pace in 2024 to 2.2% in 2025 and falling lower still in 2026 to 1.6%.
The U.S. economy had been predicted to grow by 2.4% this year but the OECD’s economists revised growth down over fears U.S. President Donald Trump’s tariffs on trading partners’ imports to the United would be inflationary, pushing inflation “higher than previously expected.”
By contrast, euro area real GDP growth was projected to continue moving upward but just less rapidly, hitting 1% in 2025, up from 0.7% in 2024, compared with the 1.3% the OECD had expected as recently as December. That continues next year, with growth in 2026 also seen at a significantly lower than-predicted 1.2%, well below the 1.5% the organization had forecast.
Chinese growth was projected to slow by 0.2% to 4.8% this year, very slightly more than expected, and then more sharply in 2026 to 4.4%.
The report warned core inflation was now projected to remain above central bank targets in many countries in 2026, including the United States.
For G20 economies, the OECD sees annual headline inflation 0.3% higher than forecast this year and in 2026, hitting a peak of 3.8% before slowing to 3.2% in 2026.
The projections were arrived at assuming that tariffs between Canada and the United States and between Mexico and the United States rise by an additional 25% from April with Mexico taking the biggest hit from Trump’s trade crusade.
Mexico would, the reports warned, see its economy contract by 1.3% this year and 0.6% in 2026 — pushing it into a deep recession, while Canadian growth would be halved to 0.7% and remain flat through 2026.
Moderating the tariffs, or narrowing the range of goods they cover, would benefit the economic prospects of all three significantly, but the impact would still filter through to weaker-than-expected global growth, the OECD warned.
“The global economy has shown some real resilience, with growth remaining steady and inflation moving downwards. However, some signs of weakness have emerged, driven by heightened policy uncertainty,” said OECD Secretary-General Mathias Cormann.
“Increasing trade restrictions will contribute to higher costs both for production and consumption. It remains essential to ensure a well-functioning, rules-based international trading system and to keep markets open.”
The report warns of a series of other risks to global growth led by worries of further hits to free and open trade and volatility from a surprise downturn, policy shift or deviation from the current inflation slowdown path that could spark market corrections, capital outflows and exchange rate instability, especially among emerging markets.
The risk were magnified by high public debt levels and asset valuation bubbles, it said.
“Given these challenges, the Outlook highlights key policy priorities. Central banks should remain vigilant given heightened uncertainty and the potential for higher trade costs to push up price pressures.”
However, the OECD said it expected interest rate reductions would continue in economies where underlying inflation was projected to moderate and aggregate demand growth was subdued as long as “inflation expectations remain well anchored, and trade tensions do not intensify further.”
It added that unambiguous fiscal actions were required to ensure debt sustainability, headroom to deal with future shocks and generate reserves to meet large future spending liabilities, as well as greater commitment to the realignment of budgetary spending toward policies that support longer-term growth.
