The OECD has lowered its global economic growth forecasts, warning that rising trade barriers and policy uncertainty could weigh on investment and household spending over the coming years.
In its Interim Economic Outlook, released on Monday, the Organisation for Economic Co-operation and Development (OECD) projected global GDP growth to slow from 3.2% in 2024 to 3.1% in 2025 and 3.0% in 2026. These estimates mark a downward revision from the OECD’s previous forecast in December, reflecting concerns over increased trade restrictions, lingering inflation, and geopolitical instability.
“The global economy has shown some real resilience, with growth remaining steady and inflation moving downwards. However, some signs of weakness have emerged, driven by heightened policy uncertainty,” OECD Secretary-General Mathias Cormann said. “Increasing trade restrictions will contribute to higher costs both for production and consumption.”
Diverging growth across major economies
Economic performance is expected to vary widely across regions. The United States is projected to see growth slow from 2.8% in 2024 to 2.2% in 2025 and 1.6% in 2026, as high interest rates and rising trade barriers dampen activity. In the euro area, GDP is expected to expand by 1.0% in 2025 and 1.2% in 2026, with subdued consumer demand and business investment weighing on recovery.
China, the world’s second-largest economy, is forecast to see its growth rate decline from 4.8% this year to 4.4% in 2026, as it grapples with property sector challenges and weakening external demand.
Meanwhile, Canada and Mexico are expected to bear the brunt of new U.S. trade policies, with their growth forecasts slashed dramatically. The OECD now expects Canada’s GDP to expand by just 0.7% in 2025 and 0.7% in 2026, while Mexico is projected to enter a recession, contracting by 1.3% in 2025 and 0.6% in 2026. These adjustments reflect the expected impact of U.S. tariff hikes of 25 percentage points on nearly all Canadian and Mexican imports, which are set to take effect in April.
Inflation remains a concern
The OECD also raised its inflation forecasts, warning that price pressures could remain elevated longer than previously expected. Headline inflation across G20 economies is now projected at 3.8% in 2025 and 3.2% in 2026, revised upwards by 0.3 percentage points from December’s estimates.
“Inflation is projected to be higher than previously expected, although still moderating as economic growth softens,” the report states. Services inflation remains persistent, reflecting tight labour markets, while goods inflation has begun to pick up in some economies.
In the United States, inflation is now expected to reach 2.8% in 2025 and 2.6% in 2026, up from previous estimates of 2.1% and 2.3%. The UK, meanwhile, is forecast to see inflation at 2.7% in 2025 and 2.3% in 2026.
Trade restrictions threaten global growth
The OECD highlighted rising protectionism as a key risk, warning that escalating trade barriers could further slow global growth.
“A series of recently announced trade policy measures will have implications for the economic outlook if sustained,” the report states. The projections assume that tariffs between the U.S., Canada, and Mexico will rise by an additional 25 percentage points on nearly all goods. The OECD noted that if these tariff hikes were lower or applied to fewer products, global growth would be stronger, and inflation would be lower.
Policy recommendations
Given these challenges, the OECD urged central banks to remain cautious. It noted that interest rate cuts could proceed cautiously in economies where inflation is moderating, but policy vigilance is required in case inflation proves more persistent.
On fiscal policy, the OECD warned that high public debt levels could limit governments’ ability to respond to future shocks. It called for spending reforms and measures to ensure debt sustainability, especially as governments face rising costs from demographic changes and increased defence spending.
The report also stressed the importance of structural reforms to boost productivity, including education and workforce development, easing business regulations, and promoting competition. The OECD sees Artificial Intelligence (AI) as a potential driver of productivity growth, but warned that benefits could be limited without policies to encourage adoption and workforce adaptation.
Outlook remains fragile
The OECD’s warnings come amid rising global uncertainty, with financial markets already pricing in risks associated with trade disputes, monetary policy shifts, and geopolitical tensions. The organisation cautioned that a further increase in trade fragmentation could significantly damage growth and push inflation even higher.
At the same time, the report noted that a reduction in trade barriers, coupled with stronger fiscal and structural reforms, could improve the global outlook. “Governments need to find ways of addressing their concerns together within the global trading system to avoid a significant ratcheting up of retaliatory trade barriers,” the OECD said.
