Tariffs threaten global growth: OECD

The OECD has warned that the global economy is poised for its weakest growth since the pandemic, primarily because of escalating trade tensions stemming from the United States tariff policies.

In its latest outlook released on Tuesday, the organization anticipates a slowdown in global growth to 2.9 percent for both 2025 and 2026, dropping below 3 percent for the first time since the 2020 pandemic slump.

The figures represent a significant downward revision from March when the OECD had projected more optimistic rates of 3.1 percent for this year and 3.0 percent for next. This comes after relatively stronger growth of 3.3 percent recorded last year.

The organization slashed growth projections for most G20 economies, emphasizing that reducing trade barriers would be "instrumental" in stimulating investment and preventing price increases.

Economic experts at the OECD stressed that continued trade restrictions could further dampen business confidence and investment, potentially leading to more persistent inflationary pressures.

"The slowdown is concentrated in the United States, Canada and Mexico, with China and other economies expected to see smaller downward adjustments," the OECD said.

The US economy is facing a major deceleration, with growth projected to decline from 2.8 percent last year to 1.6 percent this year and further to 1.5 percent next year, as persistent inflation forces the Federal Reserve to maintain elevated interest rates.

Global trade growth is expected to slow following a temporary surge in activity earlier this year as companies rushed to build inventories before new tariffs took effect.

"Substantial increases in barriers to trade, tighter financial conditions, weaker business and consumer confidence and heightened policy uncertainty will all have marked adverse effects on growth prospects if they persist," the OECD said.

"Higher trade costs, especially in countries raising tariffs, will also push up inflation, although their impact will be offset partially by weaker commodity prices."

Alvaro Pereira, the OECD's chief economist, said countries urgently needed to strike deals that would lower trade barriers. "Otherwise, the growth impact is going to be quite significant," he said. "This has massive repercussions for everyone."

The OECD's forecasts, based on mid-May tariff rates, remain tentative following recent legal challenges to US President Donald Trump's trade measures, including a court ruling against his "Liberation Day" duties.

Rising protectionism threatens to worsen the economic outlook by stoking inflation, disrupting supply chains and destabilizing markets, the OECD warned.

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