OECD Forecasts Global GDP Growth to Dip Amid Tariff Tensions — Evening Brief – 06.03.25
The Organization for Economic Co-operation and Development (OECD) has downgraded its global growth forecast, projecting world real GDP to slow to 2.9% in both 2025 and 2026, from 3.3% in 2024. The OECD attributes the deceleration to escalating trade tensions—particularly from tariff increases—and heightened global uncertainty.
The sharpest slowdowns are expected in North America. U.S. GDP growth is forecast to drop to 1.6% in 2025 and 1.5% in 2026 from 2.8% in 2024, weighed down by rising import costs, reduced immigration, and volatile policy expectations. Canada’s economy is projected to decelerate to just 0.7% annually through 2026, while Mexico is forecast to enter recession, with GDP contracting 1.3% in 2025 and 0.6% in 2026 due to its export reliance on the U.S.
Global trade growth is expected to weaken materially, declining to 2.8% in 2025 and 2.2% in 2026 from 3.8% in 2024, as businesses front-load shipments ahead of expected tariff hikes. The OECD noted that trade disruptions and uncertainty are dampening business investment and compounding the slowdown.
In other major economies:
China is forecast to see GDP growth ease to 4.7% in 2025 and 4.3% in 2026, with government stimulus partly offsetting external pressure.
India is expected to remain resilient, with growth increasing to 6.3% in 2025 and 6.4% in 2026, driven by robust domestic demand.
The euro area is projected to grow modestly at 1.0% in 2025 and 1.2% in 2026, up from 0.8% in 2024, despite persistent weakness in trade and investment.
Inflation dynamics remain uneven. G20 inflation is expected to cool to 3.6% in 2025, down from 6.2% in 2024. However, the U.S. is projected to see inflation rise to 3.2% in 2025 from 2.5%, with some models suggesting it could approach 4% by year-end due to tariff-driven import costs. Euro area inflation is expected to ease to 2.2%.
The OECD warned of substantial downside risks: abrupt shifts in trade policy, consumer pullbacks, or continued market repricing could further slow growth and amplify global supply chain disruptions. However, reversing recent tariff increases could offer near-term relief for growth and inflation—even if broader policy uncertainty persists.
Notably, the OECD’s forecast assumes a 25% U.S. tariff on most imports from Canada and Mexico beginning in April 2025, with legal challenges ongoing. A more moderate tariff outcome could materially improve growth projections, potentially lifting Canada’s outlook to 1.3% and keeping Mexico out of recession.