OECD: global economy experiencing weakest growth since COVID
Kyiv • UNN
The global economy is experiencing its weakest growth since the COVID-19 pandemic due to Trump's trade policies. The OECD has lowered growth forecasts for many G20 countries.
The global economy is experiencing its weakest growth since the COVID-19 recession, amid President Donald Trump's trade war undermining the momentum of leading economies, including the United States, according to OECD forecasts, UNN writes, citing the Financial Times.
Details
On Tuesday, the organization lowered its forecast for global production and most leading G20 economies, warning that agreements to ease trade barriers will "play an important role" in reviving investment and preventing high prices.
Global growth is expected to be 2.9% in 2025 and 2026, the OECD said in its latest full forecast. This figure followed 3% annually from 2020, when production fell due to the pandemic.
The growth of the US economy will slow down particularly sharply, falling from 2.8% last year to only 1.6% in 2025 and 1.5% in 2026, while a surge in higher inflation will not allow the Fed to cut rates this year, the OECD said.
The latest assessment is a downgrade of the interim forecasts for March, which preceded Trump's announcement of duties on "liberation day" on April 2. Even then, the OECD warned of "significant losses" caused by the fees and related policy uncertainty.
Since then, Trump has partially reduced some duties, but the increase in the average effective tariff rate in the US is still "unprecedented": from 2.5% to more than 15% - the highest level since the Second World War, the OECD noted.
The Paris-based body also cut its 2025 forecasts for G20 countries, including China, France, India, Japan, South Africa and the United Kingdom, compared to its interim forecast in March.
Alvaro Pereira, the OECD's chief economist, said that countries urgently need to conclude agreements that reduce trade barriers. "Otherwise, the impact on growth will be very significant," he said. "This will have huge consequences for everyone."
Compared to the OECD's last full forecast in December, the growth outlook for almost all countries has been lowered, Pereira said.
"The weakened economic outlook will be felt around the world, with almost no exceptions," the OECD said.
Uncertainty about the direction of global trade policy is adding to the slowdown in growth and investment. US customs measures have fluctuated greatly: Trump introduced huge duties for China before partially mitigating the measures, while threatening high duties for other economies, including the EU.
Trump has also promised to introduce a number of industry barriers, including doubling duties on steel and aluminum imports to 50 percent.
The OECD prepared its forecasts on the assumption that tariff rates as of mid-May will remain, despite setbacks, including a court decision last week finding that Trump exceeded his authority by imposing "liberation day" tariffs.
In part as a result, inflation in the US is expected to rise to almost 4 percent by the end of 2025 and remain above the Fed's target in 2026, meaning the country's central bank is likely to wait until next year before cutting interest rates, the OECD said.
Recent figures indicate a "noticeable cooling" in real GDP growth in the US, along with a significant increase in inflation expectations, the organization warned.
Overall, the OECD's forecast for this year has been cut for about three-quarters of the G20 countries compared to its interim forecast in March.
According to the new forecast, China's economic growth will slow from 5 percent last year to 4.7 percent in 2025 and 4.3 percent in 2026, while the eurozone will grow by only 1 percent this year and 1.2 percent in 2026.
Japan's economy will grow by only 0.7 percent and 0.4 percent this year and next year, respectively. The UK economy was forecast to grow by 1.3 percent this year and 1 percent in 2026, below the expected rates of 1.4 and 1.2 percent, respectively, in March.
Global trade will grow by 2.8 percent in 2025 and 2.2 percent in 2026, well below the OECD's forecasts in December.
The OECD warned that fiscal risks are rising along with trade tensions, and demands for increased defense spending will increase spending pressure.
"Historically inflated" stock valuations increase vulnerability to negative shocks in financial markets.
A prolonged period of weak investment has increased the long-term problems facing OECD economies, and this further undermines growth prospects.
"Despite rising profits, companies are shying away from investing in fixed assets in favor of accumulating financial assets and returning funds to shareholders," the OECD said. "Increasing investment will be crucial to reviving our economy and improving public finances."