Global economic growth is projected to slow this year, with rising trade tensions—particularly stemming from US tariffs—being cited as a central factor, according to a new report by the Organization for Economic Co-operation and Development (OECD).
The OECD now forecasts worldwide GDP growth to moderate to 2.9% in 2025, a downgrade from its earlier estimate of 3.1%. The report attributes the revised outlook to a “significant” increase in trade barriers, which it says have introduced heightened uncertainty and dampened business confidence globally.
“Almost no country will be spared from the impact of weakened economic prospects,” said Alvaro Pereira, the OECD’s chief economist. “We’ll have a lot less growth and job creation than we had forecasted in the past.”
The United States, whose economy expanded by 2.8% in 2024, is expected to grow by just 1.6% this year, down from the 2.2% predicted in March. The OECD also forecasts further deceleration to 1.5% in 2026. The report warns that the US remains vulnerable to rising inflation, despite earlier political promises to rein it in. Official data shows that the US economy contracted at an annual rate of 0.2% in the first quarter of 2025, the first such decline since 2022.
The shift in economic momentum coincides with a period of heightened policy volatility under President Donald Trump, who has reintroduced a series of tariffs targeting multiple trading partners. Analysts say the lack of predictability in US trade policy has unsettled markets and disrupted global supply chains.
President Trump, however, remained upbeat, stating on social media that the economy is “BOOMING” due to tariffs. Still, OECD officials have emphasized the long-term risks associated with protectionist measures. According to the report, even a modest 10% increase in tariffs on America’s trading partners could reduce US GDP by 1.6% over two years, while global output could drop by nearly a full percentage point.
The United Kingdom is also expected to be affected. The OECD cut its 2025 growth forecast for the UK to 1.3% from 1.4%, and projected a further slowdown to 1% in 2026. Trade tensions, lingering Brexit-related uncertainties, and domestic fiscal challenges were all cited as contributing factors. The OECD recommended that the UK consider raising additional tax revenues, including modernizing outdated council tax bands, to strengthen its public finances.
Chancellor Rachel Reeves recently announced £14 billion in budgetary measures aimed at creating fiscal headroom, including £4.8 billion in welfare cuts. While the UK economy posted a stronger-than-expected 0.7% growth rate in the first quarter of 2025, the OECD noted that this momentum may be short-lived amid deteriorating business sentiment and mounting public debt obligations.
In Asia, China’s economic outlook has also weakened. A private index of manufacturing activity showed contraction in May, with surveyed companies indicating that ongoing trade frictions with the US were having an impact—although many still expect tensions to ease over time.
Elsewhere, economic activity in the eurozone is expected to remain subdued, with GDP projected to grow by just 1% in 2025 and 1.2% in 2026—unchanged from earlier OECD estimates. China’s growth, while higher than the global average, is also expected to taper slightly, with forecasts at 4.7% for 2025 and 4.3% in 2026.
OECD Secretary-General Mathias Cormann urged governments to prioritize international cooperation.
“The global economic environment has become significantly more challenging,” he said. “Our key recommendation is for all governments to engage with each other to address issues in the global trading system cooperatively.”
The report comes at a time when many governments are facing competing pressures to increase military spending, invest in green transitions, and manage inflation, all while maintaining fiscal discipline.
While the full effects of recent trade policy shifts will take time to materialize, the OECD’s latest outlook serves as a cautionary note for policymakers about the interconnected risks facing the global economy.
The Wall Street Journal, BBC, and the New York Times contributed to this report.
