OECD Slashes U.S. Growth Forecasts as Tariff Turmoil Clouds Global Outlook

The Organisation for Economic Co-operation and Development (OECD) downgraded its global and U.S. growth forecasts on Tuesday, citing the growing impact of trade tensions, elevated policy uncertainty, and weakening investment conditions. The updated Economic Outlook highlighted the adverse consequences of President Donald Trump’s tariff regime and broader geopolitical volatility, which are taking a toll on confidence, consumption, and business activity worldwide.

For U.S. subscribers, the biggest takeaway was the cut to America’s GDP forecast. The OECD now expects U.S. growth to slow sharply to 1.6% in 2025, down from a 2.8% pace in 2024, and ease further to 1.5% in 2026. That represents a steep downgrade from its March projections, which forecasted a 2.2% expansion for 2025. The OECD cited the lingering effects of tariff hikes, a pullback in net immigration, a shrinking federal workforce, and widespread policy uncertainty as the principal causes for the revision.

The global picture isn’t much better. The OECD expects global GDP growth to decelerate from 3.3% in 2024 to 2.9% in both 2025 and 2026. The slowdown is concentrated in North America, with Canada and Mexico also seeing marked reductions, while other regions like Europe and Asia experienced smaller adjustments. The report assumes that the elevated tariff rates as of mid-May will remain in place, despite ongoing legal disputes in U.S. courts.

“Trade and policy uncertainty has reached unprecedented levels,” said OECD Chief Economist Álvaro Santos Pereira. “As a consequence, we’ve seen a pullback in consumption and investment, and indicators of business activity have deteriorated. If this persists, we will face weaker job growth, lower output, and renewed inflationary pressures.”

Inflation is another area of concern. The OECD revised its U.S. inflation outlook higher, now expecting headline inflation to reach 3.2% in 2025, up from its previous estimate of 2.8%. Inflation could approach 4% by the end of that year, driven by the higher cost of imported goods under new tariffs. For comparison, G20 inflation is forecast to moderate to 3.6% in 2025, meaning the U.S. could end up facing the highest price growth among major advanced economies.

Globally, the OECD warns that new trade restrictions, retaliatory tariffs, and geopolitical fragmentation risk pushing inflation higher and growth lower. It also noted that recent court rulings and executive announcements regarding reciprocal tariffs have further clouded the global trade landscape. Trump recently said he would double duties on steel imports to 50%, shortly after a court struck down and then reinstated country-specific tariffs.

Despite these headwinds, the OECD did acknowledge some bright spots, especially in the U.S. technology sector. Pereira highlighted strong productivity growth, noting that America’s leading exposure to AI, robotics, and quantum computing could widen its economic lead. “If we can reduce trade barriers and uncertainty, the world may be on the cusp of a significant productivity revival,” he said.

Nevertheless, structural reforms are urgently needed. The OECD emphasized that investment has stagnated since the 2008 financial crisis and fell further during the COVID-19 pandemic. It urged governments to reinvigorate public and private investment, especially in digital infrastructure, housing, and climate mitigation. Central banks, it added, should remain vigilant in balancing inflation risks with the need to support subdued aggregate demand.

The report outlines several policy recommendations. On the fiscal side, it urged nations to ensure long-term debt sustainability amid rising debt servicing costs, increased defense outlays, and demographic pressures. On monetary policy, the OECD supports continued interest rate cuts in economies where inflation is moderating and labor markets are not overheating.

Looking forward, the OECD sees significant upside potential if governments can de-escalate trade tensions. A coordinated reduction in tariffs, resolution of conflicts in Ukraine and the Middle East, and renewed investment in supply chain resilience could boost growth and lower inflation across the board. Without such actions, however, the global economy faces a slow grind of declining confidence, stalling output, and creeping price pressures.

In summary, the OECD’s latest forecast marks a clear warning to policymakers: unless trade barriers come down and uncertainty is addressed, growth in the U.S. and globally will falter. For American investors and businesses, the projected slowdown is a call to closely watch Washington’s evolving trade and fiscal strategy. With growth cut nearly in half from previous expectations, the stakes for policy clarity and international cooperation have rarely been higher.