The OECD raised its 2025 global growth forecast but warned that the full impact of US tariff hikes has yet to be felt. The organization expects global growth to slow to 3.2% in 2025 from 3.3% last year, then further decline to 2.9% in 2026. Despite current resilience, the OECD projects the Federal Reserve will continue cutting rates as economic headwinds intensify and labor markets weaken throughout the forecast period.
Global economy shows resilience despite tariff shock
The global economy is still on course for a substantial blow from Donald Trump’s trade measures despite showing greater resilience than expected in recent months, the OECD said, according to China Daily Asia. In new forecasts published on Tuesday, the Paris-based organization raised its 2025 outlook for world growth and most individual economies, citing the impact of front-loading in anticipation of higher tariffs.
But the OECD made little change to its 2026 predictions, when it expects global growth to drop to 2.9 percent from 3.2 percent this year and expansion in the US to slow to 1.5 percent from 1.8 percent amid higher import duties and elevated uncertainty. The full impact from an overall effective tariff rate imposed by the White House of 19.5 percent — the highest since 1933 — has yet to be felt, officials said.
Tariff effects are still unfolding
Global growth is holding up better than expected, but the full brunt of the U.S. import tariff shock is still to be felt as AI investment props up U.S. activity for now and fiscal support cushions China’s slowdown, the OECD said on Tuesday, according to TradingView. In its latest Economic Outlook Interim Report, the Organisation for Economic Cooperation and Development said the full impact of U.S. tariff hikes was still unfolding, with firms so far absorbing much of the shock through narrower margins and inventory buffers.
Many firms stockpiled goods ahead of the Trump administration’s tariff hikes, which lifted the effective U.S. rate on merchandise imports to an estimated 19.5% by end-August — the highest since 1933, in the depths of the Great Depression. “The full effects of these tariffs will become clearer as firms run down the inventories that were built up in response to tariff announcements and as the higher tariff rates continue to be implemented,” OECD head Mathias Cormann told a news conference.
Fed rate cuts expected to continue
“It’s a significant hit for the US economy, and because the US economy is such an important economy for the rest of the world, this is having implications for many countries,” OECD Chief Economist Alvaro Santos Pereira said in an interview. The OECD said inflation is expected to decline in most major economies with slower growth and weaker employment pressures. But it said central banks should remain “vigilant.”
Regional growth patterns diverge
The OECD forecast U.S. economic growth would slow to 1.8% in 2025 — up from the 1.6% it forecast in June — from 2.8% last year before easing to 1.5% in 2026, unchanged from the previous forecast. An AI investment boom, fiscal support and interest rate cuts by the Federal Reserve are expected to help offset the impact of the higher tariffs, a drop in net immigration and federal job cuts, the OECD said. China’s economy is expected to grow 4.9% this year – up from 4.7% in June – before slowing to 4.4% in 2026. In the euro zone, trade and geopolitical tensions were seen offsetting the boost from lower interest rates, the OECD said.
Recent projections by the OECD lay emphasis on the multifaceted nature of the economic future, which, on the one hand, presents inherent stability that conceals underlying structural issues due to trade tensions. Although the Federal Reserve may seem to have the necessary information to keep setting the rates lower as growth starts calming down, the organization notes that the uncertainty about the policies will further inhibit investments and consumption when made permanent.