The Organisation for Economic Co-operation and Development (OECD) has revised its global economic forecast, downgrading the 2025 growth projection to 3.1%, down from the earlier 3.2% estimate for 2024. This adjustment, revealed in the OECD’s Interim Economic Outlook, reflects mounting challenges that are expected to hinder global economic momentum in the coming year. Among the primary factors contributing to this slowdown are rising trade barriers, geopolitical instability, and tightening financial conditions, all of which are shaping a less conducive environment for worldwide growth.
The impact of these challenges is expected to vary significantly across different regions. The OECD’s revised outlook highlights particular risks for key global economies. In the United States, which had been seeing robust growth in recent years, a considerable slowdown is anticipated. U.S. GDP, which grew at 2.8% in 2024, is now forecasted to decelerate to just 2.2% in 2025. This slowdown is largely attributed to the Federal Reserve’s sustained interest rate hikes, intended to combat inflation. While effective in managing price increases, these hikes also raise borrowing costs, which in turn reduces consumer spending and slows down investment.
The Euro Area faces a similarly bleak economic outlook. While growth is still expected, it remains subdued. The region’s GDP is projected to grow by just 1.0% in 2025, down from 1.2% in 2024. This muted growth can be traced to several interconnected factors, including fluctuating energy prices, ongoing trade disruptions, and persistent inflation, all of which continue to erode consumer purchasing power. Economic conditions in Europe are further exacerbated by the ongoing effects of past financial crises and the challenges in managing the economic recovery in the wake of the pandemic.
Emerging markets, while still presenting some growth opportunities, are also facing a range of uncertainties. Some regions may benefit from higher commodity prices and relatively lower inflation. However, many emerging markets are struggling with domestic issues, such as inflation, mounting debt, and political instability. The OECD’s report cautions that these factors, combined with the global challenges of trade disruptions and financial tightening, may lead to uneven growth across emerging economies. These countries’ ability to weather the storm will depend on their ability to adapt to both global and domestic pressures.
One of the key themes of the OECD’s report is the growing barriers to global trade. Protectionist measures and tariffs continue to rise, especially in the ongoing trade conflict between the U.S. and China, which remains a critical area of concern. Both nations have implemented policies that disrupt global supply chains, further complicating the international trade environment. Additionally, the rise of economic nationalism and the reshoring of critical industries are likely to reduce global trade volumes, making it more difficult for economies to sustain the levels of growth that were once anticipated.
Geopolitical risks also loom large, as tensions in various parts of the world continue to fuel uncertainty. From regional conflicts to the challenges posed by shifting power dynamics, these geopolitical strains are adding another layer of unpredictability to the global economic landscape. The OECD emphasizes that international cooperation and multilateral efforts will be essential in addressing these issues and preventing a more severe economic downturn.
In summary, the OECD’s latest economic outlook paints a picture of a global economy facing significant headwinds in 2025. With rising trade barriers, political instability, and tighter financial conditions, the path to economic recovery appears slow and uncertain. Policymakers worldwide will need to navigate these challenges with caution and coordination, as the potential for a deeper economic slowdown remains a key risk on the horizon.
