Global Economic Growth Downgraded Amid Trade Tensions
The Organisation for Economic Co-operation and Development (OECD) has downgraded its forecast for global economic growth, citing widespread uncertainty caused by the US administration’s unpredictable approach to implementing tariffs. According to the OECD’s chief economist, Alvaro Pereira, "we are forecasting basically a downgrade for almost everybody." Speaking to the BBC, Pereira warned that "we’ll have a lot less growth and job creation than we had forecasted in the past."
The OECD’s report, released on Tuesday, slashed the outlook for the US economy this year from 2.2% to 1.6%, and predicted growth would slow again in 2026. The group also warned that the US was at risk from rising inflation, something that US President Donald Trump repeatedly promised would fall during his presidential campaign. Prior to the release of the OECD report, Trump wrote on social media: "Because of Tariffs, our Economy is BOOMING!" However, the most recent official data showed the US economy shrank at an annual rate of 0.2% in the first three months of this year, the first contraction since 2022.
The OECD has also trimmed its expectations for UK growth this year to 1.3% from the 1.4% it had predicted in March. The group forecast the UK economy would expand by 1% in 2026, compared to the 1.2% it pencilled in a few months ago. According to the OECD, UK growth would be "dampened by heightened trade tensions" as well as "elevated uncertainty". The group noted that Britain had other issues, in particular substantial government debt interest payments and a "very thin" financial buffer.
In March, UK Chancellor Rachel Reeves was forced to announce £14bn in measures, including £4.8bn in welfare cuts, to restore headroom against her self-imposed fiscal rules. While the OECD highlighted better-than-expected UK economic growth, which strengthened to 0.7% between January and March, the group cautioned that "momentum is weakening" due to "deteriorating" business sentiment. The OECD suggested that Reeves should raise tax revenues, including by closing loopholes and by re-evaluating council tax bands based on updated property values.
Under the current system, council tax in England is calculated based on the price the property would have sold for in April 1991. For Wales, it is evaluated on property prices in April 2003. The OECD’s recommendation comes ahead of Reeves’ Spending Review, where she faces tough choices on allocating departmental budgets. The government has already committed billions of pounds to defence, while the NHS is also expected to be a focus amid Labour’s pledge to reduce waiting lists.
The OECD emphasised that strengthening the public finances remains a priority, by delivering on the government’s ambitious fiscal plans, including through the upcoming Spending Review. As the BBC was told, "Strengthening the public finances remains a priority, by delivering on the government’s ambitious fiscal plans, including through the upcoming Spending Review." With the global economy facing significant challenges, the OECD’s warning of a downgrade in growth prospects serves as a stark reminder of the need for governments to take action to mitigate the effects of trade tensions and rising inflation.
The above information was provided by the BBC.
