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OECD Lowers 2025-26 Global, US Forecast

[ June 20, 2025   //   ]

Global economic prospects are weakening, with substantial barriers to trade, tighter financial conditions, diminishing confidence and heightened policy uncertainty projected to have adverse impacts on growth, according to the Organization for Economic Cooperation and Development’s (OECD) latest Economic Outlook (https://tinyurl.com/mr3m6fbh).

Global growth has slowed from 3.3 percent in 2024 to 2.9 percent in both 2025 and 2026. The slowdown is expected to be most concentrated in the U.S., Canada, Mexico and China, with smaller downward adjustments in other economies, the global policy forum said.

OECD projects U.S. GDP growth to decline from 2.8 percent in 2024 to 1.6 percent in 2025 and 1.5 percent in 2026. In the euro area, growth is projected to strengthen modestly from 0.8 percent in 2024 to 1 percent in 2025 and 1.2 percent in 2026. China’s growth is projected to moderate from 5 percent in 2024 to 4.7 percent in 2025 and 4.3 percent in 2026.

But the growth outlook would likely be even weaker if protectionism increases, further fueling inflation, disrupting supply chains and rattling financial markets, the Paris-based organization said in its latest outlook, Reuters reported.

“Additional increases in trade barriers or prolonged policy uncertainty would further lower growth prospects and likely push inflation higher in countries imposing tariffs,” OECD Secretary General Mathias Cormann said in presenting the report.

If Washington raised bilateral tariffs by an additional 10 percentage points on all countries as compared with the rates in force as of mid-May, global economic output would be about 0.3 percent lower after two years, he added.

“The key policy priorities in this context are constructive dialogue to ensure a lasting resolution to current trade tensions,” he said.

U.S. President Donald Trump’s tariff announcements since he took office in January have already roiled financial markets and fueled global economic uncertainty, forcing him to walk back some of his initial stances.

Last month, the U.S. and China agreed to a temporary truce to scale back tariffs, while Trump also postponed 50 percent duties on the European Union until July 9.

While new tariffs may create incentives to manufacture in the United States, higher import prices would squeeze consumers’ purchasing power and economic policy uncertainty would hold back corporate investment, the OECD warned.

Meanwhile, the higher tariff receipts would only partly offset revenues lost due to the extension of the 2017 Tax Cuts and Jobs Act, new tax cuts and weaker economic growth, it added.

Trump’s sweeping tax cut and spending bill was expected to push the U.S. budget deficit to 8 percent of economic output by 2026, among the biggest fiscal shortfalls for a developed economy not at war.

As tariffs fuel inflation pressures, the Federal Reserve was seen keeping rates on hold through this year and then cutting the fed funds rate to 3.25-3.5% by the end of 202

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