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AmextaFinance > News > Global economy set for weakest growth since Covid-19, OECD warns
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Global economy set for weakest growth since Covid-19, OECD warns

News Room
Last updated: 2025/06/03 at 3:02 AM
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The global economy is heading into its weakest growth spell since the Covid-19 slump as Donald Trump’s trade war saps momentum in leading economies including the US, according to OECD forecasts. 

The organisation slashed its outlook for global output and the majority of the G20 leading economies on Tuesday as it warned that agreements to ease trade barriers would be “instrumental” in reviving investment and avoiding higher prices.

Global growth is expected to be 2.9 per cent in 2025 and 2026, the OECD said in its latest full outlook. The figure has exceeded 3 per cent every year since 2020, when output plunged because of the pandemic.

US growth will slow particularly sharply, sliding from 2.8 per cent last year to just 1.6 per cent in 2025 and 1.5 per cent in 2026, while a bout of higher inflation will prevent the Federal Reserve from cutting rates this year, the OECD said. 

The latest assessment represents a downgrade to its March interim forecasts, which preceded the US president’s “liberation day” tariff announcements on April 2. Even then, the OECD warned of a “significant toll” stemming from the Trump administration’s levies and associated uncertainty over policy. 

Trump has since partially climbed down on some duties, but the increase in the average US effective tariff rate is still “unprecedented”, from 2.5 per cent to above 15 per cent — the highest since the second world war, the OECD noted. 

The Paris-based body also trimmed 2025 forecasts for G20 countries including China, France, India, Japan, South Africa and the UK compared with its March interim outlook.  

Álvaro Pereira, the OECD’s chief economist, said countries needed urgently to strike deals that would lower trade barriers. “Otherwise, the growth impact is going to be quite significant,” he said. “This has massive repercussions for everyone.” 

Compared with the OECD’s last full outlook in December, growth prospects for almost all countries have been downgraded, said Pereira.

“Weakened economic prospects will be felt around the world, with almost no exception,” the OECD said. 

Adding to the drag on growth and investment is uncertainty about the direction of global trade policy. US tariff moves have fluctuated wildly, with Trump imposing swingeing levies on China before partially dialling the measures back, while threatening hefty tariffs on other economies including the EU. 

Trump has also vowed to impose a range of sectoral barriers, including a doubling of levies on steel and aluminium imports to 50 per cent. 

The OECD prepared its forecasts on the assumption that tariff rates as of mid-May would be sustained, despite setbacks including a court judgment last week that found Trump had exceeded his authority in imposing ‘liberation day’ duties. 

Partly as a result, US inflation is now expected to rise to nearly 4 per cent by the end of 2025 and remain above the Fed’s target in 2026, meaning the central bank will probably wait until next year before lowering interest rates, the OECD said.

Recent indicators pointed to a “notable cooling” of real GDP growth in the US alongside a significant increase in inflation expectations, it warned. 

Altogether, the OECD’s outlook for this year has been trimmed for around three-quarters of the G20 members compared with its March interim forecast.

Chinese growth will slow from 5 per cent last year to 4.7 per cent in 2025 and 4.3 per cent in 2026, according to the new outlook, while the Eurozone will expand by just 1 per cent this year and 1.2 per cent in 2026.

Japan’s economy will grow by just 0.7 per cent and 0.4 per cent this year and next. The UK economy was predicted to expand by 1.3 per cent this year and 1 per cent in 2026 — a downgrade on expected rates of 1.4 and 1.2 per cent respectively in March. 

Global trade will expand by 2.8 per cent in 2025 and 2.2 per cent in 2026, sharply lower than OECD predictions in December. 

Fiscal risks are rising along with trade tensions, the OECD warned, with demands for more defence expenditure set to add to spending pressures.

“Historically elevated” equity valuations are increasing vulnerabilities to negative shocks in financial markets. 

A long spell of weak investment has compounded the longer-term challenges facing OECD economies, and this is further sapping the growth outlook.

“Despite rising profits, firms have shied away from fixed-capital investment in favour of accumulating financial assets and returning funds to shareholders,” the OECD said. “Boosting investment will be instrumental to revive our economies and improve public finances.”

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News Room June 3, 2025 June 3, 2025
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