OECD: Global Growth Slows to 2.9% Amid U.S. Trade War/ Newslooks/ WASHINGTON/ J. Mansour/ Morning Edition/ The OECD has lowered its global growth forecast to 2.9% for 2025–2026. U.S. growth was sharply revised downward due to ongoing trade war impacts. China’s growth outlook remained stable, helped by government subsidies.
Global Growth Outlook Slashed: Quick Looks
- OECD Downgrades Global Forecast: Growth now projected at 2.9% for both 2025 and 2026, down from 3.1% and 3.0% respectively.
- U.S. Economy Hit Hardest: Forecast revised from 2.2% to 1.6% in 2025, reflecting damage from ongoing tariff battles.
- Trump Trade War to Blame: OECD cites protectionism as a key drag on global output and inflation risks.
- China Stays Afloat: Beijing’s consumer subsidies and welfare payments help offset economic pressure.
- Eurozone Holding Steady: Forecast unchanged due to strong labor markets, stimulus spending, and ECB rate cuts.
- Deficit Alarm: U.S. budget deficit expected to hit 8% of GDP by 2026 due to Trump’s tax and tariff policies.
- Warning on Further Tariff Escalation: Additional barriers could cut global output by another 0.3%, OECD says.
OECD: Global Growth Slows to 2.9% Amid U.S. Trade War
Deep Look
The Organisation for Economic Cooperation and Development (OECD) has cut its global growth forecast for 2025 and 2026 to 2.9%, citing the ongoing economic fallout from the Trump administration’s escalating trade war policies. The Paris-based institution highlighted that the U.S., the world’s largest economy, has been especially hard-hit, leading the global slowdown.
Trump’s Tariffs Bite U.S. Economy
The U.S. economy, which the OECD had previously expected to grow by 2.2% in 2025, is now forecast to expand just 1.6% in 2025 and 1.5% in 2026. This marks one of the steepest revisions in recent OECD history.
Trump’s aggressive stance on trade, including recent tariff hikes on Chinese and European goods, has created ripple effects across global supply chains. While the tariffs were intended to boost domestic manufacturing, they have instead raised import costs, dampened consumer purchasing power, and discouraged corporate investment, the OECD said.
“Additional increases in trade barriers or prolonged policy uncertainty would further lower growth prospects,” said OECD Secretary-General Mathias Cormann, emphasizing that inflation could rise in countries enforcing tariffs.
Budget Deficit Soars
Alongside weaker growth, Trump’s fiscal policy—especially the extension of the 2017 Tax Cuts and Jobs Act and other proposed reductions—will balloon the U.S. budget deficit to 8% of GDP by 2026. This would mark one of the largest fiscal gaps for a developed nation not at war.
While tariff revenues are increasing, they aren’t enough to balance the revenue losses stemming from tax cuts and slower growth, the OECD report warned.
Inflation and Fed Policy
The report also indicates that inflationary pressures from tariffs may keep the Federal Reserve’s key interest rates elevated through 2025, with cuts not expected until late 2026. The central bank’s benchmark fed funds rate is projected to fall to 3.25%-3.5% by the end of 2026, assuming inflation remains persistent.
China Shields Itself
In contrast to the U.S., China’s economy is weathering the trade war better than anticipated, helped by government subsidies and welfare spending. A trade-in program for consumer goods such as mobile phones and appliances, combined with fiscal transfers, has helped stimulate demand.
As a result, China is expected to grow 4.7% in 2025 and 4.3% in 2026, only slightly down from earlier forecasts. Despite ongoing trade tension, China’s policy response is helping cushion the blow.
Europe Holds Steady
The OECD maintained its eurozone growth forecast at 1.0% for 2025 and 1.2% for 2026, supported by strong labor markets, lower interest rates, and public spending—particularly from Germany. The bloc’s stability has provided some optimism amid the wider global turbulence.
OECD’s Call for Dialogue
The OECD stressed that a return to constructive trade dialogue is essential to reversing the economic damage. Cormann cautioned that if Washington were to raise bilateral tariffs across the board by an additional 10 percentage points, global GDP would decline by 0.3% over two years.
The Trump administration’s recent walk-back of some tariffs—such as postponing the 50% levy on European imports to July 9 and the temporary truce with China—suggests possible willingness to engage in further negotiation. But the OECD said the damage from past protectionist moves is already visible.
You must Register or Login to post a comment.