Old Navy and Gap retailers will be seen on April 9, 2025 as people walked through Times Square in New York City.
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As President Donald Trump’s tariff disruption places emphasis on expectations, forecasts of economic growth have been further reduced by the Economic Co-operation and Development Agency.
The US growth outlook was revised downward to just 1.6% this year and 1.5% in 2026. In March, the OECD was still hoping to expand by 2.2% in 2025.
Fallout from Trump’s tariff policy, increased uncertainty in economic policy, slower net immigration and a smaller federal workforce have been cited as reasons for the latest downgrade.
Meanwhile, global growth is expected to be lower than previous forecasts, with the OECD saying “the slowdown is concentrated in the US, Canada and Mexico,” while other economies are expected to see smaller downward revisions.
“Global GDP growth is projected to slow from 3.3% in 2024 to 2.9% in this year and 2026… a technical assumption that tariff rates in mid-May are still in place despite the ongoing legal challenges,” the OECD said.
Previously, we predicted global growth of 3.1% this year and 3% in 2026.
“The global outlook is becoming increasingly challenging,” the report said. “The significant increase in trade barriers, harsh financial position, reduced business and consumer reliability, and increased policy uncertainty all have a significant impact on the growth outlook if they persist.”
Frequent changes regarding tariffs have continued in recent weeks, leading to uncertainty in the global market and the economy. Some of the latest developments include Trump’s mutual, country-specific collections being crushed by the US International Trade Court, and then revived by the Court of Appeals, where Trump says he will double his iron duties by 50%.
“The reason we downgraded almost everyone in our forecast is that trade uncertainty and economic policy uncertainty have reached unprecedented levels,” OECD chief economist Alvaro Pereira said on Tuesday, “Squawk Box Europe.”
“As a result, we see that consumption and investment have collapsed, and in fact activity indicators have collapsed. And if we take this into consideration and try to estimate it in our model, we will see lower future growth, fewer jobs and increase inflationary pressure.”
U.S. inflation rising
The OECD adjusted its inflation forecast, saying, “In particular, in countries that raise tariffs, rising trade costs also boost inflation, but that impact is partially offset by lower commodity prices.”
The impact of tariffs on inflation is heatedly debated as many central bank policymakers and global analysts say how taxation affects prices remains unclear, suggesting that it depends on factors like potential measures.
The OECD’s inflation outlook shows a noticeable difference between the US and some of the other major economies of the world. For example, G20 countries are expected to record 3.6% inflation in 2025, down from the 3.8% estimate in March, while the US forecast is up from the previous 2.8% to 3.2%.
According to the OECD, US inflation could even end at 4% towards the end of 2025.
“To the cusp of something very important.”
OECD’s Pereira also discussed the development of technologies such as AI and how they affect productivity and give the US an advantage.
“We expect this to widen the gap between the US (and other worlds) due to the US sector’s higher exposure to AI,” he said.
Technologies such as AI, robotics and quantum computing could potentially be a “significant return to productivity.”
“I believe that if we can get trade agreements between countries, not just China, the US, but not just in the rest of the world, if we can reduce uncertainty, we may be at the cusp of something very important,” Pereira said.
