Global Growth Under Threat: OECD Slashes Forecasts Amid Trade War Escalation

The Organization for Economic Co-operation and Development (OECD) has significantly downgraded its global economic growth projections, citing the ongoing trade war as a primary cause. The intergovernmental economic organization, comprising 38 member countries, now anticipates a decline in global growth from 3.3% in 2024 to 2.9% in both 2025 and 2026. This marks a notable reduction from its March forecast of 3.1% for the same period.
This grim outlook underscores the widespread impact of protectionist policies, particularly those initiated by the U.S. under President Donald Trump. The report warns that “weakened economic prospects will be felt around the world, with almost no exception,” leading to “lower growth and less trade [that] will hit incomes and slow job growth.” The United States, Canada, Mexico, and China are identified as major contributors to this anticipated global economic slowdown.
Beyond stunted growth, the OECD highlights the inflationary pressures stemming from protectionism. Tariffs, intended to boost domestic production, are instead expected to drive up the cost of goods and services, potentially negating any perceived benefits. This poses a particular risk for developing nations already burdened by high debt levels, as rising inflation could exacerbate their financial vulnerabilities.
In response to these economic headwinds, the OECD advises central banks to remain vigilant regarding inflation. While no immediate interest rate hikes are expected from the Bank of Canada, the report suggests that a return to higher borrowing costs could be imminent if inflationary pressures intensify. The organization also emphasizes the critical need for increased investment to revive economies and strengthen public finances, urging governments, especially those with existing debt, to prioritize sustainable financial paths.