Assuming United States President Donald Trump’s latest round of tariff rates (as of mid-May) are here to stay, despite ongoing legal challenges, global growth is projected to shrink sharply by 12% from 3.3% in 2024 to 2.9% in 2026.
In addition to downgrading its global growth forecasts the Organisation for Economic Co-operation and Development (OECD) expects the slowdown to be concentrated in the U.S., Canada and Mexico, while other economies are projected to see smaller downward revisions.
With U.S. consumers in the eye of tariff imposts, the Paris-based research group expects U.S. gross domestic product (GDP) to tumble 57% to 1.6% in 2025 from 2.8% in 2024 and fall to 21% from the previously expected GDP growth of 2.2%.
The OECD attributes much of its projected GDP downgrade to fallout from Trump’s tariff policy, elevated economic policy uncertainty, a slowdown in net immigration, and a smaller federal workforce.
However, many central bank policymakers and global analysts believe the magnitude of the fallout from Trump’s tariff policy depends on potential countermeasures by other countries.
The OECD also expects Australia’s economy to grow 1.8% this year, down from its previous forecasts of 1.9% and 2.2% in 2026.
Included in the OECD’s projections is an expected inflation uptick.
U.S. inflation, as measured by the personal-consumption price index, is expected [by the OECD] to pick up to 3.9% by the end of 2025 – up 2.1% in April for a year earlier.
The OECD fears that this projected inflation uptick could prevent the Federal Reserve from cutting rates again until 2026.
“Higher trade costs, especially in countries raising tariffs, will also push up inflation, although their impact will be offset partially by weaker commodity prices,” the OECD said.
While the OECD suspects U.S. inflation could even be closing in on 4% toward the end of 2025, G20 countries are now expected to record 3.6% inflation in 2025 — down from 3.8% in March’s estimate.
However, when it comes to productivity, OECD Chief Economist Alvaro Pereira believes developments in technology such as AI are giving the U.S. an advantage.
“Productivity has been very strong in the United States, and we expect that likely this will widen the gap between the United States [and] the rest of the world, exactly because the exposure to AI by sectors in the U.S. are higher,” he said.
With technology like AI, robotics and quantum computing, there is the possibility of a “significant productivity revival,” he said — but only if trade barriers are lowered and investment and consumption increase.
“I think if we are able to get trade agreements between countries, not only between China, the United States, but also other parts of the world and if we are able to reduce uncertainty, we do believe that we might be on the cusp of something quite significant,” Pereira said.
