Global economic growth is slowing more than expected just a few months ago as the fallout from the trade war of the United States government are having a greater impact on the country's economy, the OECD said on Tuesday, revising down its outlook.
The expansion of the global economy is on track to slow from 3.3% last year to 2.9% in 2025 and 2026, the Organization for Economic Cooperation and Development said, cutting its March estimates of growth from 3.1% this year and 3.0% next year.
But the growth outlook is likely to be even weaker if protectionism increases, further fueling inflation, disrupting supply chains and roiling financial markets, the Paris-based organization said in its latest Economic Outlook report.
“Further increases in trade barriers or prolonged uncertainty will further reduce growth prospects. They are also likely to increase inflation in countries that impose tariffs,” OECD Secretary-General Mathias Cormann said as he presented the report.
If Washington raises bilateral tariffs by another 10 percentage points for all countries, compared with the rates in effect in mid-May, global economic output will be about 0.3% lower after two years, Cormann added.
“The top priority in this context is constructive dialogue to secure a lasting solution to the current trade tensions,” Cormann said.
Impact of tariffs and projections for the US
US President Donald Trump's tariff announcements since taking office in January have already roiled financial markets. They have also fuelled global economic uncertainty. The pressure has been so great that Trump has backtracked on some of his earlier positions.
Last month, the US and China agreed to a temporary truce to reduce tariffs. In addition, Trump postponed the imposition of 50% tariffs on the European Union. The new deadline for those tariffs is July 9.
The OECD forecast that the US economy will grow by just 1.6% this year and 1.5% next year, assuming for calculation purposes that the tariffs in place in mid-May will remain in place through the rest of 2025 and 2026.
For 2025, the new forecast represented a significant cut. Previously, the organization expected the world's largest economy to grow by 2.2% this year. For next year, the projection was 1.6%.
While the new tariffs may create incentives for manufacturing in the United States, higher import prices will reduce consumers’ purchasing power. In addition, uncertainty about economic policy is likely to slow business investment, the OECD warned.
Meanwhile, higher tariff revenues will only partially offset revenues lost due to the extension of the 2017 Tax Cuts and Jobs Act, new tax cuts and weaker economic growth, he added.
As tariffs fuel inflationary pressures, the Federal Reserve is expected to hold interest rates steady this year and then cut them to 3.25-3.5% by the end of 2026.
China, Europe and Brazil: specific forecasts
In China, the fallout from U.S. tariff hikes will be partially offset by government measures, including subsidies for a trade-in program for consumer goods such as cellphones and home appliances. In addition, there will be an increase in social assistance transfers, the OECD said.
The report estimated that the world's second-largest economy, which is not an OECD member, will grow by 4.7% this year and 4.3% in 2026, little changed from previous forecasts of 4.8% in 2025 and 4.4% in 2026.
The outlook for the euro area remained unchanged from March. Growth is forecast at 1.0% for this year and 1.2% for next year. This growth will be driven by resilient labor markets and interest rate cuts. In addition, a surge in public spending in Germany is expected to boost growth in 2026.
For Brazil, the OECD maintained its growth projection for this year in 2025 at 2.1%, and raised its estimate for 2026 to 1.6%, from 1.4% previously. For the organization, restrictive monetary policy and new trade barriers will be only partially offset by the positive impact of expansionary fiscal policy. Inflation is expected to remain high, the OECD said, but will fall back to the central bank's target in the second half of 2026.
Source: Leigh Thomas | Notícias Agrícolas
