U.S. Growth Forecast Cut: OECD, Trump Tariffs
- The Organisation for Economic Cooperation and Growth (OECD) has further reduced its economic growth projections for the United States and the world,attributing the downturn to President Trump's trade...
- Several factors contributed to this downgrade, including the repercussions of Trump's tariff policy, heightened economic policy uncertainty, a decline in net immigration, and a shrinking federal workforce.
- Global GDP growth is projected to decelerate from 3.3% in 2024 to 2.9% in both 2025 and 2026.This forecast assumes that current tariff rates, as of mid-May, will...
The OECD has slashed its U.S. growth forecast to a mere 1.6% for 2025 and 1.5% for 2026, directly impacting the global economic outlook. This significant revision stems from Trump tariffs and the resulting market instability and trade uncertainty, with global growth also taking a hit. The report highlights that the repercussions of these policies, coupled with a decline in net immigration and a shrinking federal workforce, are contributing factors. inflation is expected to rise, potentially hitting 4% by the end of the year.Meanwhile, AI advancements could give the U.S. a productivity boost. For comprehensive insights, read the latest report featured in News Directory 3. Discover what’s next for the global economy.
OECD Cuts U.S.,Global Growth Forecasts Amid Trade Tensions
The Organisation for Economic Cooperation and Growth (OECD) has further reduced its economic growth projections for the United States and the world,attributing the downturn to President Trump’s trade policies and resulting market instability. The U.S.growth outlook now stands at a mere 1.6% for the current year and 1.5% for 2026. This is a critically important drop from the OECD’s March forecast of 2.2% for 2025.
Several factors contributed to this downgrade, including the repercussions of Trump’s tariff policy, heightened economic policy uncertainty, a decline in net immigration, and a shrinking federal workforce. The OECD also anticipates lower global growth, with the slowdown primarily affecting the U.S., canada, and Mexico.
Global GDP growth is projected to decelerate from 3.3% in 2024 to 2.9% in both 2025 and 2026.This forecast assumes that current tariff rates, as of mid-May, will remain in place despite ongoing legal challenges. Previously,the OECD had predicted global growth of 3.1% for this year and 3% for 2026.
The OECD report emphasized the increasingly challenging global outlook. It warned that “considerable increases in barriers to trade, tighter financial conditions, weaker business and consumer confidence, and heightened policy uncertainty will all have marked adverse effects on growth prospects if they persist.”
Recent weeks have seen frequent changes in tariff policies, creating turbulence in global markets. These include the U.S. Court of international Trade initially striking down Trump’s reciprocal, country-specific levies, only for an appeals court to reinstate them. Additionally, Trump has indicated he would double steel duties to 50%.
Alvaro Pereira, OECD chief economist, addressed the situation, stating that trade uncertainty and economic policy uncertainty have reached unprecedented levels. He added that consumption and investment have decreased,and activity indicators have also declined,leading to less growth,fewer jobs,and increased inflationary pressures.
U.S. Inflation on the Rise
The OECD has also adjusted its inflation forecast, noting that higher trade costs, especially in countries raising tariffs, will drive up inflation. This impact will be partially offset by weaker commodity prices. While the impact of tariffs on inflation remains a subject of debate, the OECD’s outlook reveals a divergence between the U.S. and other major economies.
G20 countries are expected to see 3.6% inflation in 2025, down from 3.8% in March. However, the U.S. projection has risen to 3.2%, up from 2.8%. The OECD suggests that U.S. inflation could approach 4% by the end of 2025.
AI and Productivity
Pereira also highlighted the impact of technological advancements, such as artificial intelligence, on productivity, giving the U.S. a potential advantage. He noted that productivity has been strong in the U.S., and this trend is highly likely to widen the gap between the U.S. and the rest of the world due to greater AI adoption across various sectors.
Pereira believes that technologies like AI, robotics, and quantum computing could lead to a significant productivity revival, provided that trade barriers are lowered and investment and consumption increase. He emphasized the importance of trade agreements and reduced uncertainty to unlock this potential.
What’s next
The OECD urges countries to pursue trade agreements and reduce policy uncertainty to mitigate the negative impacts on economic growth and inflation.The future economic landscape hinges on the ability to foster international cooperation and embrace technological advancements.