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As President Donald Trump’s trade war sucks momentum in major economies, including the United States, the world economy has been heading towards the weakest growth spell since Covid-19 slump., according to OECD forecasts.
The organisation on Tuesday reduced global production and the outlook for most of the G20’s major economy as it warned that contracts to ease trade barriers would “contribute” to revive investments and avoid higher prices.
The OECD is expected to see global growth of 2.9% in 2025 and 2026. This figure has exceeded 3% each year since 2020, when output plunged due to the pandemic.
US growth has fallen particularly sharply, sliding from 2.8% last year to just 1.6% in 2025 and 1.5% in 2026, but high inflation will prevent the Federal Reserve from cutting this year, the OECD said.
The latest rating represents a downgrade to the March provisional forecast, which preceded Trump’s “liberation day” tariff announcement on April 2. Nevertheless, the OECD warned of “significant sacrifices” caused by policy collections and associated uncertainties.
Trump has since risen partially into some duties, but the rise in the average effective tariff rate in the US remains “unprecedented” – from 2.5% to 15%. This is the best since World War II
The Paris-based institution also trimmed 2025 forecasts for G20 countries, including China, France, India, Japan, South Africa and the UK, compared to its provisional outlook for March.
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OECD chief economist Alvaro Pereira said there is an urgent need to attack transactions that lower trade barriers. “If not, the growth impact would be very important,” he said. “This has had a huge impact on everyone.”
Compared to the OECD’s final full outlook in December, the growth outlook for almost every country has been downgraded, Pereira said.
“Economic outlook has weakened around the world, and it is almost no exception,” the OECD said.
In addition to resistance to growth and investment, there is uncertainty about the direction of global trade policy. US tariff movements have fluctuated wildly, with Trump imposing a shaky tax on China before partially dialing measures and threatening heavy tariffs on other economies, including the EU.
Trump has also vowed to impose barriers for various sectors, including doubling steel and aluminum imports to 50%.
The OECD has prepared forecasts on the assumption that the tariff rate for mid-May will be maintained despite finding that Trump exceeds his authority to impose “liberation date” obligations despite the set-off that included last week’s court decision.
As a result, US inflation is expected to rise to nearly 4% by the end of 2025, exceeding the Fed’s target in 2026. That is, central banks are likely to wait until next year before lowering interest rates.
The recent indicators warned that they pointed to a “salient cooling” of US GDP growth along with a significant increase in inflation expectations.
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Overall, this year’s OECD outlook is trimmed by about three-quarters of G20 members compared to the preliminary forecast for March.
According to the new outlook, China’s growth will slow from 5% last year to 4.7% in 2025, 4.3% in 2026 and 4.3% in 2026, but the eurozone will expand by just 1% this year and 1.2% in 2026.
Japan’s economy will only grow by 0.7% and 0.4% this year and the future, respectively. The UK economy is projected to expand 1.3% this year and 1% in 2026, with forecast rates downgraded by 1.4 and 1.2% in March, respectively.
World trade expanded by 2.8% in 2025 and 2.2% in 2026, a sharp lower than the OECD forecast in December.
According to the OECD, fiscal risks are rising with trade tensions, with demands for more defence spending set to add to spending pressure.
The “historically promoted” stock valuations increase the vulnerability to negative impacts in financial markets.
The long spell of weak investment is exacerbating the long-term challenges facing the OECD economy, which is even more depriving the prospect of growth.
“Even with rising profits, companies have moved away from fixed capital investments in favor of accumulating financial assets and returning funds to shareholders,” the OECD said. “Booting investments will help us revive our economy and improve our finances.”
