The global economy is on course for its weakest growth since the COVID-19 pandemic, as a resurgent U.S. trade war under President Donald Trump triggers a downturn across leading economies, according to a grim new forecast from the OECD, reported by the Financial Times.
In its latest full economic outlook, the Organisation for Economic Co-operation and Development slashed growth projections for nearly all G20 countries, with global output expected to slow to just 2.9% in both 2025 and 2026 — the lowest post-pandemic expansion rate.
The U.S. will be hit particularly hard. The OECD now expects American GDP growth to fall from 2.8% in 2024 to 1.6% in 2025 and 1.5% in 2026, largely due to soaring tariffs and sticky inflation. The report warns that the Federal Reserve will likely delay any interest rate cuts until 2026, as inflation nears 4%, far above the central bank’s 2% target.
“This has massive repercussions for everyone,” said OECD Chief Economist Álvaro Pereira. “The trade war, especially the erratic U.S. tariff policy, is already weighing on global investment and pushing prices up.”
The OECD’s downgrade follows Trump’s April “liberation day” tariff announcement, which has catapulted average U.S. effective tariff rates from 2.5% to over 15%, the highest level since World War II. Despite recent walk-backs on some duties, the Paris-based body says uncertainty is fueling a worldwide chill in economic confidence.
In addition to the U.S., the OECD trimmed 2025 growth forecasts for China, India, France, Japan, South Africa, and the UK, with all now facing slower-than-expected recoveries. China’s GDP is now projected to fall from 5% in 2024 to 4.3% in 2026, while Japan and the Eurozone will barely grow.
The global trade outlook has also deteriorated, with projected trade expansion now just 2.8% in 2025 and 2.2% in 2026, down sharply from the OECD’s December projections.
Beyond trade tensions, the OECD highlights rising fiscal risks and fragile financial markets. “Historically elevated” equity valuations and investor complacency leave markets increasingly vulnerable to shocks, the report says.
Meanwhile, corporations are shying away from long-term investments. “Despite rising profits, firms have favored stock buybacks and financial asset accumulation over capital investment,” the OECD said, warning that this is undermining both productivity and fiscal stability.
The OECD’s assessment — based on tariff levels as of mid-May — also accounts for a court ruling that found Trump had overstepped his authority with certain duties, though the outlook assumes the current rates hold.
Without urgent global action to lower trade barriers and reignite investment, the OECD cautions, the world could face a protracted economic malaise not seen since the immediate aftermath of the pandemic.
“Unless trade is stabilized and investment rebounds,” Pereira said, “the world economy risks drifting into a low-growth trap.”
