The latest estimates from the Organization for Economic Co-operation and Development show that both US and global economic growth are set to be lower than previously predicted as President Donald Trump’s proposed tariffs on goods imported into the US.
“Global GDP growth is projected to be moderate from 3.2% in 2024 to 3.1% in 2025 and 3.0% in 2026, with some G20 economies increasing trade barriers and increasing geopolitical and policy uncertainty regarding investment and household expenditure,” the OECD said Monday.
“Early GDP growth in the US is projected to slow down from its recent strong pace, forecast to be 2.2% in 2025 and 1.6% in 2026.”
Previous forecasts released in December showed that the OECD estimated global economic growth this year and this year and the next 3.3%. The US economy was expected to increase by 2.4% in 2025 and 2.1% in 2026.
OECD executive director Mathias Cormann said on Monday that uncertainty about trade policy is a key factor in the organization’s forecasts.
“There is a very important level of uncertainty right now. When it comes to setting trade policy, it is clear that the global economy will benefit from an increase in certainty,” he told CNBC’s Sylvia Amaro.
The OECD said in its report that the latest forecast is “based on the assumption that bilateral tariffs between Canada and the US, Mexico and the US will earn an additional 25% points on almost all goods imports starting in April.”
If tariff increases are low or applied to fewer products, economic activity will be stronger and inflation will be lower than expected, but “but global growth will still be weaker than previously expected,” the report states.
Canada and Mexico both saw their growth prospects have been dramatically reduced, both on the receivers of tariffs imposed by the US. Canada’s economy is expected to rise by 0.7% this year from its past 2% estimate, while Mexico is expected to shrink by 1.3% compared to its previously estimated 1.2% expansion.
The OECD also updated its inflation forecast, saying price growth is set to be higher than previously expected, but will be easier with easing economic growth.
“What we’re seeing is that inflation continues to decline, but we expect inflation to decline more slowly,” Corman told CNBC. “What we’re proposing is that some of the measures relating to trade, some of the measures relating to tariffs, and the uncertainty of related policies certainly affects inflation.”
The latest figures show that inflation in US headlines is expected to be 2.8% in 2025, up from the 2.1% estimate in December, while the G20 economy forecast has risen from 3.5% in December to 3.8% in Monday’s report.
“Currently, core inflation is projected to exceed central bank targets in many countries, including the US, in 2026,” the OECD added.
OECD Head Corman said central bankers are now “on guardian.”
“Indeed, I believe that even major economies like the US and the UK will have a range of further policy easing if inflation expectations remain fixed,” he said, noting that in some major economies have slowed the pace of inflation easing or that inflation has revived.
Trade policy tensions
The OECD has linked many of its updates to estimates of economic growth and inflation with geopolitical and trade tensions. This is an issue that has dominated the market in recent weeks and months.
“A recent series of trade policy measures, if maintained, will affect the economic outlook,” the OECD said it pointed to Trump, or threatened tariffs, and potential retaliation obligations imposed by trading partners.
Trump’s tariff policies have been marked by uncertainty over the past few weeks as the threat of negotiations and retaliation continues. The president flipped over when tariffs were imposed, repeating the products they apply and how much higher they are, but he insisted last week that he “is not going to bend at all.”
“If the announced trade policy measures continue as expected in the forecast, new bilateral tariff charges will impose government revenues, but will induce global activity, revenues and regular tax revenues. They will also add trade costs, raise the prices of imported final goods for consumers, and raise the interim inputs of the business,” the OECD said.
Corman of the OECD was asked if he agreed with President Trump’s position that his trade policy could be short-term painful but could involve long-term benefits for the country’s economy.
If trade tariffs are reversed, there will be a “positive impact” on global growth, and therefore also the US economic growth, he said.
Cormann said it is important to ensure that the market is open and functional, and “working a rule-based trading system properly,” adding that the issues need to be resolved through cooperation and dialogue.
“We encourage everyone to engage with each other, be honest and openly involved, get over the issues at hand and try to find the best possible way without resorting to tariffs or other trade restrictions,” he said.
