The Organisation for Economic Co-operation and Development (OECD) has revised down its global economic growth forecasts for 2025 and 2026, predicting a modest 2.9% growth rate over the next two years. The international organization cites several factors contributing to this downward revision, including former U.S. President Donald Trump’s unilateral tariff policies, heightened policy uncertainty, and a global slowdown in demand, with particular emphasis on the largest economies, the U.S. and China.
The OECD’s new forecasts represent a significant adjustment, as the global economy grapples with the ongoing effects of the trade wars, notably between the U.S. and China, and the broader geopolitical tensions that have disrupted international markets. The tariff policies implemented by the Trump administration during his tenure have been particularly pointed to as major contributing factors, with critics arguing that these measures have not only harmed U.S. businesses but also stunted global trade growth.
Former President Trump’s trade policies, including tariffs on Chinese imports and other foreign goods, were designed to protect American industries and reduce the trade deficit. However, economists and global financial leaders, including Andrew Bailey, the Governor of the Bank of England, have warned that these tariffs have undermined the post-World War II global trade system, which has been based on low barriers to trade and international cooperation.
In his remarks, Bailey criticized the tariffs, emphasizing that they had contributed to significant disruptions in the global supply chain and had a cascading effect on international trade. The trade restrictions imposed by the U.S. not only created friction with China, but they also affected trade relationships with other countries, disrupting established markets and delaying critical goods shipments.
The OECD report also pointed to weakening demand as a key concern, particularly in the United States and China, the world’s two largest economies. Both nations have faced slowing growth, with the U.S. grappling with persistent inflationary pressures and China struggling to maintain its growth momentum after years of stringent COVID-19 lockdown measures. While these factors have weighed heavily on global growth expectations, there is concern that the U.S. and China’s economic decoupling will have long-term consequences for the global economy.
China’s economic slowdown has been particularly significant, as the country has been a primary driver of global growth over the past few decades. The OECD’s downgrade underscores the importance of Chinese economic health, which has ripple effects on the broader Asia-Pacific region and other global markets. As China reorients its economy towards consumption and services, the transition has proven more difficult than expected, particularly in the face of geopolitical and trade tensions.
The OECD’s updated economic outlook also reflects broader trends in international trade, with global supply chains still in a state of flux after the pandemic and persistent supply chain disruptions in key sectors like technology, energy, and agriculture. Trade tensions, combined with rising protectionism, have only added to the uncertainty in the global economy.
Looking ahead, the OECD’s forecast for 2025 and 2026 paints a picture of sluggish growth for developed economies, with developing nations expected to face even steeper challenges. While the report does not predict a global recession, the revised outlook emphasizes the need for coordinated international economic policies and efforts to stabilize trade relations.
The OECD’s warnings are not without precedent. In recent years, many economists have expressed concerns about rising protectionist policies and trade barriers that threaten to undermine the globalized economy. However, as the OECD suggests, the ongoing trade disputes between major powers like the U.S. and China only serve to magnify these issues, prolonging global economic recovery and reducing overall trade growth.
In conclusion, the OECD’s decision to downgrade global growth forecasts highlights the ongoing challenges facing the world economy. As trade tensions, particularly between the U.S. and China, continue to dominate international economic discussions, the path to recovery for the global economy remains uncertain. The organization’s forecast serves as a reminder of the fragility of the post-pandemic economic recovery and the importance of international cooperation in navigating these turbulent times.
