US Growth Forecast Cut Further by OECD as Trump’s Tariffs Sour Outlook
The Organisation for Economic Co-operation and Development (OECD) has downwardly revised its economic growth forecasts for the US and globally, citing the uncertainty surrounding President Donald Trump’s tariff policies as a major factor. According to the OECD, the US growth outlook has been revised to 1.6% this year and 1.5% in 2026, down from a previous estimate of 2.2% expansion in 2025.
The downgrade is attributed to the fallout from Trump’s tariff policy, elevated economic policy uncertainty, a slowdown of net immigration, and a smaller federal workforce. The OECD also noted that global growth is expected to be lower than previously forecast, with the organisation citing that “the slowdown is concentrated in the United States, Canada and Mexico,” while other economies are projected to see smaller downward revisions.
In its report, the OECD stated that “global GDP growth is projected to slow from 3.3% in 2024 to 2.9% this year and in 2026 … on the technical assumption that tariff rates as of mid-May are sustained despite ongoing legal challenges.” This represents a downward revision from its previous forecast of 3.1% growth this year and 3% in 2026.
The OECD’s Chief Economist, Alvaro Pereira, told CNBC’s “Squawk Box Europe” that “the reasons why we downgraded almost everybody in our forecast is that trade uncertainty and economic policy uncertainty has reached unprecedented levels.” Pereira added that “as a consequence, we’ve been seeing that consumption and investment has come down, and in fact, activity indicators also have come down. And if you take this into account, and we also try to estimate in our models, you see that there’ll be less growth, less jobs, and more inflationary pressures going forward.”
The OECD’s report also noted that the impact of tariffs on inflation has been a subject of debate, with many central bank policymakers and global analysts suggesting that it remains unclear how the levies will impact prices. However, the OECD’s inflation outlook shows a notable difference between the US and some of the world’s other major economies. For instance, while G20 countries are now expected to record 3.6% inflation in 2025 — down from 3.8% in March’s estimate — the projection for the US has risen to 3.2%, up from a previous 2.8%.
In fact, the OECD suggested that US inflation could even be closing in on 4% toward the end of 2025. Pereira also discussed developments in technology such as AI, and how they are impacting productivity — and giving the US an advantage. “Productivity has been very strong in the United States, and we expect that likely this will widen the gap between the United States [and] the rest of the world, exactly because the exposure to AI by sectors in the US are higher,” he said.
Pereira added that with technology like AI, robotics and quantum computing, there is the possibility of a “significant productivity revival,” but only if trade barriers are lowered and investment and consumption increase. “I think if we are able to get trade agreements between countries, not only between China, United States, but also other parts of the world and if we are able to reduce uncertainty, we do believe that we might be on the cusp of something quite significant,” Pereira said.
The OECD’s report highlights the increasingly challenging global outlook, with the organisation citing that “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.” As the global economy continues to navigate the uncertainty surrounding Trump’s tariff policies, it remains to be seen how the situation will unfold.
According to CNBC, the OECD’s downgrade is a clear indication that the global economy is facing significant challenges. The organisation’s report is a stark warning to policymakers, highlighting the need for a more coordinated approach to trade and economic policy.
The downgrade is also a reflection of the increasingly complex and interconnected nature of the global economy. As CNBC reported, the OECD’s Pereira believes that the current uncertainty surrounding trade policy is having a profound impact on the global economy, with the potential to lead to less growth, fewer jobs, and more inflationary pressures.
In conclusion, the OECD’s downgrade of its economic growth forecasts for the US and globally is a clear indication that the global economy is facing significant challenges. The uncertainty surrounding Trump’s tariff policies is having a profound impact on the global economy, and policymakers must take a more coordinated approach to trade and economic policy to mitigate the effects of this uncertainty.
The source of this article is: CNBC and their reporting on the OECD’s economic growth forecasts.
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