OECD Revises Growth Forecasts Amid Trade Uncertainty
The global economy is expected to slow in the coming years as trade tensions escalate, with the Organisation for Economic Co-operation and Development (OECD) revising its growth projections downward for 2025 and 2026. The OECD now expects global GDP to grow by 3.1% in 2025 and 3.0% in 2026, a decrease from previous estimates of 3.3% for both years.
The primary driver behind the weaker outlook is the resurgence of protectionist trade policies, particularly under the Trump administration. The OECD warned that tariff hikes and trade restrictions could further dampen business investment, disrupt supply chains, and contribute to inflationary pressures. Central banks may be forced to maintain higher interest rates for longer than previously expected, which could further weigh on economic activity.
North American Economies Hit Hard
The United States, Canada, and Mexico are expected to experience the most pronounced economic slowdowns due to escalating trade tensions. U.S. GDP growth is forecast to decline to 2.2% in 2025 before falling further to 1.6% in 2026. The OECD cited higher tariffs as a key factor in the slowdown, warning that the additional trade costs would put pressure on both businesses and consumers.
Canada’s growth projections have been cut significantly, with the economy now expected to expand by just 0.7% in both 2025 and 2026—down sharply from previous forecasts of 2%. The impact of U.S. trade restrictions is expected to weigh heavily on Canadian exports.
Mexico faces an even more severe economic contraction, with GDP now expected to shrink by 1.3% in 2025 and 0.6% in 2026. The OECD’s report suggests that Mexico will be the hardest hit among North American economies due to its heavy reliance on trade with the United States.
Eurozone Sees Limited Growth
While North America struggles with trade shocks, the eurozone is projected to maintain modest growth, though at a slower pace than previously expected. The OECD forecasts GDP growth of 1.0% in 2025 and 1.2% in 2026 for the euro area.
Germany, France, and Italy—the region’s three largest economies—are all expected to grow by less than 1% in 2025, reflecting ongoing economic challenges, including inflation, fiscal constraints, and high energy costs. Spain, however, is expected to outperform its European peers, with projected growth of 2.6% in 2025 and 2.1% in 2026.
China’s Economy Shows Some Resilience
Despite mounting trade pressures, China’s economy posted stronger-than-expected growth in early 2025. Retail sales rose 4.0% in the first two months of the year, industrial output increased by 5.9%, and fixed-asset investment climbed 4.1%. All three indicators surpassed economist forecasts.
However, ongoing weakness in the housing market and rising unemployment could pose challenges for China’s broader economic stability. New-home prices fell in February at a faster rate than in January, while second-hand home prices continued their downward trend. Investment in property development also declined, dropping 9.8% year-on-year in the first two months of 2025.
China’s jobless rate climbed to 5.4% in February, the highest level in two years, reflecting the pressures facing the economy. Economists warn that if U.S. tariffs on Chinese exports remain in place or are expanded further, manufacturing and trade-related employment could take a further hit.
Despite these challenges, Beijing remains committed to its 2025 growth target of “around 5%.” Policymakers have pledged additional fiscal and monetary support to stimulate domestic consumption, including subsidies for home appliance purchases and childcare assistance programs.
Global Uncertainty Looms
Beyond trade tensions, inflationary pressures and geopolitical risks continue to cloud the global economic outlook. The OECD cautioned that rising trade barriers could push consumer prices higher, complicating central banks’ efforts to manage inflation.
The report also warned that a worsening of trade disputes could have a broader economic impact. The OECD estimated that if the U.S. and its trading partners impose additional tariff hikes across a wide range of goods, global growth could be reduced by 0.3 percentage points over the next two years, with inflation rising by an additional 0.4 percentage points.
With major elections looming in several key economies and geopolitical tensions remaining high, uncertainty is likely to persist. The OECD emphasised the need for structural reforms and coordinated policy actions to mitigate risks and support sustainable growth.