Recent estimates from the Organisation for Economic Co-operation and Development (OECD) indicate that both U.S. and global economic growth will fall short of previous projections. The primary culprit behind this downturn is the proposed tariffs on goods imported to the United States by President Donald Trump. According to the OECD's latest interim Economic Outlook report, global GDP growth is expected to decrease from 3.2% in 2024 to 3.1% in 2025 and further to 3.0% in 2026. This decline is attributed to heightened trade barriers across several G20 economies, coupled with increased geopolitical and policy uncertainty, which are likely to negatively impact investment and household spending.
The OECD projects that annual GDP growth in the United States will decelerate significantly from its current robust pace, registering 2.2% in 2025 and 1.6% in 2026. This is a stark contrast to earlier projections made in December, which estimated a growth rate of 2.4% in 2025 and 2.1% in 2026. The OECD's revised forecasts are based on the assumption that bilateral tariffs between Canada and the United States, as well as between Mexico and the United States, will increase by an additional 25 percentage points on nearly all merchandise imports starting in April.
The OECD notes that if the tariff increases were less severe or applied to a smaller range of goods, economic activity could be more vigorous and inflation rates lower than currently projected. However, even under these conditions, global growth would still lag behind previous estimates. Both Canada and Mexico, which are affected by the U.S. tariffs, have seen their growth forecasts dramatically revised downward. Canada’s economy is now anticipated to grow by just 0.7% this year, a sharp decline from the earlier estimate of 2%. Similarly, Mexico's economy is projected to contract by 1.3%, compared to a previously expected growth of 1.2%.
In addition to the economic growth outlook, the OECD has also updated its inflation forecast. It indicates that price growth will exceed earlier expectations but is anticipated to ease due to a slowing economy. Specifically, headline inflation in the U.S. is now expected to reach 2.8% in 2025, up from the 2.1% estimate provided in December. Furthermore, the inflation projection for G20 economies has risen from 3.5% in December to 3.8% in the latest findings. The OECD has also highlighted that core inflation is likely to remain above central bank targets in numerous countries, including the United States, through 2026.
The OECD attributes much of the recent updates in economic growth and inflation forecasts to ongoing geopolitical and trade tensions, which have significantly influenced market dynamics in recent weeks. A series of newly announced trade policy measures are likely to impact the economic outlook if they persist. The OECD specifically points to the tariffs imposed or threatened by President Trump, as well as potential retaliatory duties from trading partners. There has been considerable uncertainty surrounding Trump's tariff policies, with fluctuating timelines and varied goods coverage. Despite this uncertainty, the president has recently maintained a firm stance against any concessions.
If the announced trade policy actions continue as currently projected, the new bilateral tariffs are expected to generate increased revenues for the governments implementing them. However, they will simultaneously act as a drag on global economic activity, household incomes, and regular tax revenues. Furthermore, these tariffs will raise trade costs, consequently increasing the prices of affected imported goods for both consumers and businesses reliant on intermediate inputs.
