OECD Cuts U.S. Growth Forecast Over Tariffs, Policy Uncertainty

The world’s economy is forecast to slow from 3.3 percent in 2024 to 2.9 percent in 2025 and 2026, with a global outlook that is becoming “increasingly challenging”. This is according to the latest report by the Organisation of Economic Cooperation and Development (OECD), released Tuesday. Increases in trade barriers, tighter financial conditions, weakened business and consumer confidence as well as heightened policy uncertainty are cited as among the major risks to growth.

The U.S. economy is expected to slow particularly sharply, set to slide from 2.8 percent GDP growth in 2024 to 1.6 percent in 2025 and 1.5 percent in 2026. "This reflects the substantial increase in the effective tariff rate on imports and retaliation from some trading partners," the OECD said, before adding that “high economic policy uncertainty, a significant slowdown in net immigration and a sizable reduction in the federal workforce" were also contributing factors. These figures are based on the assumption that the tariffs rates as of mid-May remain the same and mark a downward revision from the previous March projections of 2.2 percent in 2025 and 1.6 percent in 2026.

Canada and Mexico too will see slowdowns, with the former’s GDP growth forecast to drop from 1.5 percent to 1 percent in 2025, as the latter is expected to fall from 1.5 percent to 0.4 percent. China, which was slapped with some of the heaviest U.S. tariffs that have since been temporarily reduced, is forecast to see growth slow from 5 percent in 2024 to 4.7 percent in 2025 and 4.3 percent in 2026.

By contrast, India is projected to continue to show the strongest growth at 6.3 percent, ticking up to 6.4 percent in 2026. It is followed by Indonesia, with expected growth of 4.7 percent in 2025 and 4.8 percent in 2026.

In terms of annual headline inflation, the OECD group is projected to reach 4.2 percent in 2025, up from 3.7 percent previously calculated. Of the G20 countries, Argentina, Turkey and Russia are expected to see the highest annual inflation in 2025 at 36.6 percent, 31.4 percent and 9.7 percent, respectively. While still high, this marks a major improvement for both Argentina and Turkey, which have come down from 219.9 percent and 58.5 percent in 2024.