The Organisation for Economic Co-operation and Development (OECD) warns that an escalation of the trade war, initiated by the new US president, is likely to harm global growth.
UNN reports with reference to Financial Times.
In its interim forecast report, published on Monday, the OECD warned that Donald Trump's trade war is already causing "significant damage" to the global economy. Global growth will slow down this year and next year. Inflation will be stronger than previously expected.
Global growth will slow from 3.2% last year to 3.1% and 3% in 2025 and 2026 respectively. Inflation will be more persistent than previously expected. Higher trade barriers will contribute to persistent inflation.
Examples of negative impact
Given the measures that Trump has already made official, Mexico will be the most affected, entering a recession from 2025 and reducing its gross domestic product (GDP) by 1.3%, which is 2.5 percentage points less than the OECD expected in December 2024.
Growth forecasts for Canada have also been lowered: the report refers to a meagre 0.7% increase in activity in both 2025 and 2026, as a result of a 1.3 point correction to the forecast.
US GDP growth will slow from 2.8 percent last year to 2.2 percent this year and 1.6 percent in 2026, the OECD said. In addition, US growth this year will be 0.2 percentage points slower than the OECD previously expected.
American consumers will take a hit equivalent to a reduction in real net disposable income per household of more than $1,600. Interest rates will have to be raised by a full percentage point
Economist's comment
Clearly, trade uncertainty and economic policy uncertainty are causing significant damage. Consumer confidence has fallen in many countries, including Canada, Mexico, the US and some others.
The OECD called on the US president (without naming him) to reduce trade tensions and tariffs that he has already introduced, and to make his policies more predictable for the benefit of the global economy.
Reminder
Donald Trump announced an increase in tariffs on Canadian steel and aluminum to 50% in response to Ontario's 25% increase in electricity tariffs.
The EU is launching countermeasures against the US over steel and aluminum tariffs.
The European Union responded to US tariffs on steel and aluminum by publishing a list of goods that will be affected by tariffs. It includes meat, poultry, alcohol, chewing gum and women's negligee.
Trump threatened to impose a 200% duty on European wines if the EU does not abolish the 50% duty on whiskey from the US.
