The Organization for Economic Cooperation and Development (OECD) has sharply downgraded its global and U.S. growth forecasts for 2025, attributing the pronounced economic deceleration to escalating trade tensions fueled by President Donald Trump’s tariff-centric policies. In a sweeping and stern assessment released ahead of its ministerial gathering in Paris, the OECD painted a grim portrait of global economic prospects, stating that the international economy is being stifled by rising protectionism, crumbling investor confidence, and mounting fiscal risks. Most significantly, the U.S.—the architect of these trade restrictions—is among the worst-affected, with economic expansion projected to nearly halve.
Highlights:
OECD slashes global growth forecast for 2025 to 2.9% from 3.3%
U.S. GDP growth expected to fall sharply to 1.6% from 2.8%
Global trade barriers are curbing investment and inflating costs
Protectionist Trade Policy Erodes Global Confidence, Dents Investment Activity
The OECD warned that Trump’s aggressive tariff strategy is inducing systemic uncertainty and chilling the investment climate. The accumulation of trade barriers, combined with prolonged unpredictability over U.S. trade policy, has led to a sharp decline in investor sentiment across both advanced and emerging markets. Businesses are hesitant to commit to capital expenditure, and cross-border supply chains are being restructured in ways that may prove costly and inefficient. The erosion of confidence is visible in softening corporate earnings forecasts, capital flight from volatile economies, and rising cost structures that ultimately burden consumers.
Highlights:
Investment activity has slowed as firms face uncertainty
Cross-border supply chains disrupted by tariff barriers
Trade policy unpredictability suppresses business confidence
U.S. Economy Faces Steeper Decline Amid Trade and Immigration Restrictions
According to the OECD, the U.S. economy is bracing for a deeper slump than previously anticipated. The latest forecast sees U.S. GDP growth plunging to just 1.6% in 2025 from 2.8% in 2024—a dramatic revision downward from March projections. Besides the trade-related fallout, additional pressures stem from Trump’s restrictive immigration policies and the downsizing of the federal workforce. These measures, the OECD notes, not only tighten labor supply but also reduce public sector activity, compounding the growth drag at a time when private sector momentum is already under strain. While tariffs were intended to reduce the trade deficit, they have instead heightened inflation and risked long-term competitiveness.
Highlights:
U.S. GDP to grow only 1.6% in 2025 vs. 2.8% in 2024
Curbs on immigration and public sector jobs weigh on growth
Tariffs intensify inflationary pressures rather than reduce deficits
Inflation Outlook Clouds Monetary Policy Path for the Federal Reserve
One of the more worrying implications of Trump’s economic agenda is the prospect of persistent inflation. The OECD now expects inflation in the U.S. to accelerate further in 2025, due in part to higher import costs caused by tariffs and rising wages in tight labor markets. These developments complicate the Federal Reserve’s task of balancing inflation control with support for growth. The OECD cautioned that the Fed may not resume easing interest rates until 2026—later than most market participants had anticipated. A de-anchoring of consumer inflation expectations could derail the Fed’s plans altogether, leading to prolonged monetary tightening.
Highlights:
Inflation in U.S. expected to rise further in 2025
Fed unlikely to resume rate cuts until 2026, OECD says
Inflation expectations risk becoming unanchored amid policy uncertainty
Broader Fiscal Pressures Loom Large as Global Policy Space Shrinks
Alongside the damage from trade protectionism, the OECD underscored intensifying fiscal risks across advanced and emerging economies. With rising demands for spending on defense, climate adaptation, and elderly populations, governments are grappling with increasingly unsustainable fiscal paths. In the U.S., the combination of weaker economic activity and costly tariffs is expected to swell the budget deficit despite attempts to rein in spending. The OECD recommends urgent structural reforms, including rationalizing public expenditures and broadening tax bases to ensure long-term fiscal sustainability. Non-essential spending should be curtailed, and new revenue streams must be found to preserve sovereign balance sheets amid deteriorating global growth.
Highlights:
Global fiscal stress rising amid spending demands on defense, climate
U.S. deficit to widen despite tariff revenues and spending cuts
OECD urges tax base expansion and reduced non-essential expenditure
Calls for De-escalation of Trade Tensions Dominate Paris Ministerial Agenda
The release of the OECD’s forecast coincided with its annual ministerial conference in Paris, where trade tensions and economic rebalancing are at the top of the agenda. Senior officials, including U.S. Trade Representative Jamieson Greer, EU Trade Commissioner Maros Sefcovic, and China’s Commerce Ministry delegate Lin Feng, are set to deliberate on avenues to revive global trade. The OECD reiterated that a rollback of tariffs and easing of trade barriers are the most immediate policy levers available to revive growth. However, it cautioned that even if Trump were to reverse his stance, the economic benefits would not be instantaneous. Lingering uncertainty and damaged trade relations will take time to repair, stalling the rebound in confidence and capital flows.
Highlights:
U.S., EU, and China trade officials meet at OECD summit in Paris
OECD calls for urgent rollback of tariffs to revive investment
Trade recovery will be delayed even if tariffs are reversed today
Widespread Global Economic Pain Expected with Few Exceptions
The OECD emphasized that the global economic deceleration will be felt almost universally. With growth forecasts cut across the board, few economies are expected to escape the slowdown triggered by U.S. trade policy. Emerging markets reliant on exports face demand contraction, while developed nations are grappling with inflation and wage pressures. Even countries not directly targeted by tariffs are being affected through disrupted trade flows, commodity price volatility, and diminished investment inflows. According to Chief Economist Alvaro Pereira, “Weakened economic prospects will be felt around the world, with almost no exception. Lower growth and less trade will hit incomes and slow job growth.”
Highlights:
Global economic slowdown projected to be broad-based
Emerging markets hurt by weaker trade demand
Income growth and job creation expected to slow globally
