OECD Lowers Global Growth Forecast Amid U.S. Tariff Impacts

The OECD has downgraded its global growth forecasts due to U.S. tariffs, predicting 3.1% growth for 2025 and 3.0% for 2026. Increased tariffs could lead to a global output decrease, affecting countries differently, with India expected to grow fastest, and Mexico forecasted to decline.

The Organisation for Economic Co-operation and Development (OECD) has revised its global growth forecasts for 2025 and 2026, primarily due to trade tensions stemming from tariffs imposed by U.S. President Donald Trump. In a recent report, the OECD has adjusted its predicted global growth rate for this year to 3.1%, down from the previously forecasted 3.3%. Furthermore, the projection for 2026 has also been reduced to a growth rate of 3.0%, instead of the earlier forecast of 3.3%.

The report indicates that recent activity indicators suggest a weakening of global growth prospects, exacerbated by heightened policy uncertainty and significant risks. A critical issue arises from the potential further fragmentation of the global economy. The OECD highlights the possibility of a 0.3% decline in global output if bilateral tariffs on all non-commodity imports to and exports from the United States are increased.

A simulation demonstrating the impact of a 10% tariff indicates that Mexico may be substantially affected, potentially experiencing a 1.3% drop in growth by the third year of such bilateral measures. Conversely, the United States itself could face a decrease in growth of up to 0.72%. Notably, the OECD maintains that reduction of tariffs from current levels could foster stronger growth.

Globally, India is anticipated to experience the fastest growth rates among major economies, with real GDP growth forecasted at 6.4% and 6.6% for 2025 and 2026, respectively. In contrast, Mexico stands out as the only major nation expected to encounter a decline, while Canada appears poised for minimal growth. The eurozone is projected to have a growth rate of 1.0% in 2025 and 1.2% in 2026, reflecting slower economic activity due to these tariff challenges.

In summary, the OECD has lowered its global growth projections for the coming years, citing the adverse effects of tariffs initiated by the U.S. This adjustment underscores the potential for economic fragmentation and highlights the need for tariff reductions to stimulate stronger growth. Despite these challenges, India is forecasted to lead growth among major economies while other nations, particularly Mexico, may experience significant declines.

Original Source: gna.org.gh