OECD Slashes Global Growth Forecast To 2.9% For 2025 As Trump Tariffs Weigh
OECD projected India's economy will likely grow at 6.3% in 2025 and 6.4% in 2026.
The Organisation for Economic Co-operation and Development slashed its global growth forecast to 2.9% from its earlier forecast of 3.1% for 2025. The Paris-based organisation also reduced the global GDP forecast for 2026 to 2.9% from 3%.
This is the second time OECD has slashed the growth forecast this year. In 2024, global GDP grew at 3.3%, the Paris-based organisation said in the global economic outlook report published while their annual meeting was being held in Paris. The current reduction is based on the assumption that current trade tariff policies may be sustained.
The growth outlook across the globe has become challenging with rising trade barriers and policy uncertainty, which is weighing on consumer confidence and blocking investments, OECD said. The slowdown will likely be concentrated in the US, Canada, Mexico, and China. Other economies are also witnessing a downward growth trajectory.
Further, countries implementing fresh barriers will likely see their inflation going up. OECD-wide inflation is estimated to rise to 4.2% in 2025 from 3.7% in their previous projection. It will reach 3.2% in 2026 in contrast to the previous projection of 2.9%.
However, softer commodity prices may offset this impact to some extent, according to the Paris-based forum consisting of 38 countries.
US President Donald Trump announced tariffs on its 60 trade partner countries on April 2. Later, Trump put a pause on those tariffs till July 9. The US has reached a deal with the UK and agreed on trade terms with China. As of now, the US is negotiating trade pacts with the European Commission, India and several other countries.
OECD is expecting that additional trade barriers are likely to be introduced, which will further escalate uncertainty and pressurise global growth prospects. Hence, it's crucial to avoid further trade barriers. Trade agreements between countries and reducing protectionist trade policies will be vital to revive growth and investments.
To add to woes, fiscal risks are also rising across the globe with high public debt levels. Spending pressures are increasing in sectors like defence and green transitions. High debt levels are likely to pose risks for developing economies. Restoring fiscal discipline will help the economies avoid the fiscal risks.
With inputs from Bloomberg.
