Both U.S. and global economic growth is set to be lower than previously projected as President Donald Trump’s proposed tariffs on goods imported to the U.S. weigh on growth, according to the latest estimates from the Organisation for Economic Co-operation and Development.
“Global GDP growth is projected to moderate from 3.2% in 2024, to 3.1% in 2025 and 3.0% in 2026, with higher trade barriers in several G20 economies and increased geopolitical and policy uncertainty weighing on investment and household spending,” the OECD said Monday in its interim Economic Outlook report.
“Annual GDP growth in the United States is projected to slow from its strong recent pace, to be 2.2% in 2025 and 1.6% in 2026.”
In its previous projections, published in December, the OECD had estimated 3.3% global economic growth this year and next. The U.S. economy had been expected to grow 2.4% in 2025 and 2.1% in 2026.
Mathias Cormann, secretary-general of the OECD, on Monday said that the uncertainty around trade policy was a key factor in the organization’s projections.
“There’s a very significant level of uncertainty right now, and you know it is clear that the global economy would benefit from increases in certainty when it comes to the trade policy settings,” he told CNBC’s Silvia Amaro.
In its report, the OECD said its latest projections were “based on an assumption that bilateral tariffs between Canada and the United States and between Mexico and the United States are raised by an additional 25 percentage points on almost all merchandise imports from April.”
If the tariff increases were lower, or applied to fewer goods, economic activity would be stronger and inflation would be lower than projected, “but global growth would still be weaker than previously expected,” the report noted.
Canada and Mexico, both on the receiving end of tariffs imposed by the U.S., saw their growth outlooks slashed dramatically. Canada’s economy is now expected to grow 0.7% this year, down from the previous 2% estimate, and Mexico’s is projected to shrink by 1.3% — compared to a previously estimated 1.2% expansion.
The OECD also updated its inflation forecast, saying price growth was set to be higher than previously expected, but would ease due to moderating economic growth.
“What we see is that inflation will continue to go down, but that inflation is expected to go down more slowly,” Cormann told CNBC. “What we are suggesting is that some of the measures in relation to trade, some of the measures in relation to tariffs, and the related policy uncertainty, certainly are having an impact on inflation.”
Headline inflation in the U.S. is now expected to come in at 2.8% in 2025 according to the latest figures, up from the 2.1% December estimate, while the projection for G20 economies has risen from 3.5% in December to 3.8% in Monday’s report.
“Core inflation is now projected to remain above central bank targets in many countries in 2026, including the United States,” the OECD added.
OECD head Cormann said central bankers should now “remain vigilant.”
“Certainly, if inflation expectations remain anchored, we do believe that in even major economies like the United States and the United Kingdom, there is scope for further policy easing,” he said, but pointed out that in some major economies the pace of inflation easing has slowed or inflation has picked back up.
Trade policy tensions
The OECD linked much of its update to economic growth and inflation estimates to geopolitical and trade tensions — issues that have dominated markets in recent weeks and months.
“A series of recently announced trade policy measures will have implications for the economic outlook if sustained,” the OECD said, pointing to the tariffs imposed, or threatened by, Trump, and potential retaliatory duties imposed by its trading partners.
Trump’s tariff policies have been marked by uncertainty over recent weeks, as negotiations and retaliation threats continue. The president has flipped-flopped over when tariffs will be imposed, which goods they will apply to and how high they will be, although he insisted last week that he wasn’t “going to bend at all.”
“If the announced trade policy actions persist, as assumed in the projections, the new bilateral tariff rates will raise revenues for the governments imposing them but will be a drag on global activity, incomes and regular tax revenues. They also add to trade costs, raising the price of covered imported final goods for consumers and intermediate inputs for businesses,” the OECD said.
Asked if he agreed with U.S. President Trump’s position that his trade policies could involve short-term pain, but long-term benefits for the country’s economy, the OECD’s Cormann said that lower global economic growth and higher inflation would have “flow on consequences” for the U.S.
If trade tariffs were reversed, there would be a “positive impact” on global growth, and therefore also U.S. economic growth, he said.
Cormann said that it was important to keep markets open and ensure they are functional and to have “rules based trading system in good working order,” adding that any issues should be resolved through cooperation and dialogue.
“We would encourage everyone to engage with each other and to honestly and openly, work through the issues at hand and try and find the best possible way forward without having to resort to tariffs and other trade restricting measures,” he said.
