Trade War Fallout: OECD Cuts Global Growth Projections to 2.9%

The global economic outlook has taken a turn for the worse, with the Organization for Economic Co-operation and Development (OECD) announcing a significant cut to its growth projections. The influential 38-member organization now forecasts global economic growth to fall from 3.3% in 2024 to 2.9% for both 2025 and 2026, a downward adjustment from its earlier estimate of 3.1% for these years. This revision reflects growing concerns over the impact of the ongoing trade war.
The report, a somber assessment of global economic health, explicitly links the downgraded projections to the current trade tensions, particularly those initiated by the U.S. “In this challenging and uncertain environment, we have downgraded our growth projections,” the OECD states, adding that “lower growth and less trade will hit incomes and slow job growth.” The economic slowdown is expected to be widespread, with the United States, Canada, Mexico, and China identified as major contributors to the decline.
A key warning from the OECD pertains to inflation. The report suggests that protectionist measures will inevitably lead to higher prices for goods and services, contradicting the notion that tariffs benefit consumers. This inflationary pressure, coupled with high debt levels, poses a significant threat to developing nations, which may struggle with refinancing needs and increased borrowing costs.
The OECD’s recommendations for navigating this uncertain period include vigilance from central banks regarding inflation, despite current expectations of no immediate rate hikes. The Bank of Canada, for instance, is advised to remain prepared for potential policy adjustments. Crucially, the report also advocates for increased investment to stimulate economic activity and strengthen public finances, acknowledging the difficulty for highly indebted governments to fund such initiatives.