Instant Insight

30-Second Take

• The OECD has cut its economic growth forecasts for the U.S. and globally due to rising trade barriers.
• U.S. GDP growth is expected to slow to 2.2% in 2025 and 1.6% in 2026.
• Global GDP growth forecasts have been reduced to 3.1% for 2025 and 3.0% for 2026.

Quick Brief

2-Minute Digest

Essential Context

The Organisation for Economic Co-operation and Development (OECD) has downgraded its economic growth forecasts for both the U.S. and the global economy. This move is attributed to the increasing trade barriers, particularly those imposed by the U.S. under policies initiated during President Trump’s administration.

Core Players

• Organisation for Economic Co-operation and Development (OECD)
• United States – Specifically, the economic policies under President Trump’s administration
• G20 economies – Including Canada, Mexico, and the European Union, which have been impacted by U.S. tariffs

Key Numbers

• 2.2% – Expected U.S. GDP growth rate for 2025
• 1.6% – Expected U.S. GDP growth rate for 2026
• 3.1% – Global GDP growth forecast for 2025
• 3.0% – Global GDP growth forecast for 2026
• 1.0% – Eurozone GDP growth forecast for 2025
• 1.2% – Eurozone GDP growth forecast for 2026

Full Depth

Complete Coverage

The Catalyst

The OECD’s decision to cut economic growth forecasts is primarily driven by the escalation of trade barriers, particularly the tariffs imposed by the U.S. on various goods. These tariffs have led to retaliatory measures from other countries, including Canada, Mexico, and the European Union.

“Higher trade barriers in several G20 economies and increased policy uncertainty are weighing on investment and household spending,” the OECD noted.

Inside Forces

The U.S. economy, which had been experiencing a strong growth phase, is now expected to slow down significantly. The OECD forecasts a GDP growth rate of 2.2% for 2025 and 1.6% for 2026, down from previous estimates. This slowdown is attributed to the negative impacts of higher trade barriers on investment and consumer spending.

In the euro area, growth is also expected to be subdued, with a forecasted GDP growth rate of 1.0% for 2025 and 1.2% for 2026. Germany, the largest economy in the eurozone, faces particularly sharp revisions, with GDP growth expected to be just 0.4% in 2025.

Power Dynamics

The trade policies initiated during President Trump’s administration have significantly altered the global trade landscape. The imposition of a 25% tariff on all steel and aluminum imports to the U.S. has triggered a series of retaliatory measures from other countries. This has created a complex web of trade tensions that are now affecting global economic growth.

The OECD warns that further fragmentation of the global economy could lead to a 0.3% reduction in global GDP over the next three years and an increase in inflation by 0.4 percentage points annually.

Outside Impact

The impact of these trade barriers is not limited to the U.S. and the eurozone. Countries like Canada and Mexico, which have high trade exposure to the U.S., are also facing significant economic challenges. Canada’s growth outlook has been slashed by 1.3 percentage points to just 0.7%, while Mexico’s 2025 GDP is now expected to shrink by 1.3%.

Consumers are likely to bear the brunt of these higher tariffs, leading to a significant impact on living standards. Inflation remains a persistent challenge, with core inflation in the U.S. projected to remain above central bank targets in 2026.

Future Forces

Looking ahead, the OECD suggests that the global economy will continue to face challenges from trade tensions and policy uncertainty. Central banks are unlikely to cut interest rates aggressively due to lingering inflationary pressures.

The European Central Bank is expected to lower rates gradually, with its key policy rate projected to fall to 2% by late 2025. Similarly, the Bank of England is expected to reduce rates but at a measured pace.

The future trajectory of global economic growth will depend on how these trade tensions evolve and how policymakers respond to the ongoing challenges.

Data Points

• 3.2% – Global GDP growth in 2024
• 3.1% – Global GDP growth forecast for 2025
• 3.0% – Global GDP growth forecast for 2026
• 2.2% – Expected U.S. GDP growth rate for 2025
• 1.6% – Expected U.S. GDP growth rate for 2026
• 1.0% – Eurozone GDP growth forecast for 2025
• 1.2% – Eurozone GDP growth forecast for 2026
• 0.4% – Germany’s GDP growth forecast for 2025
• 2.8% – U.S. core inflation forecast for 2025