The Organization for Economic Co-operation and Development (OECD) has sounded a clear alarm about the trajectory of the global economy, significantly lowering its growth projections due to the escalating trade war. The group of 38 countries now anticipates global economic growth to fall from 3.3% in 2024 to 2.9% in both 2025 and 2026, a downgrade from its earlier 3.1% forecast. This revised outlook points to a pervasive negative impact on incomes and job markets worldwide.
The OECD’s latest report explicitly connects this dim forecast to the “challenging and uncertain environment” fueled by protectionist trade policies. It warns that “lower growth and less trade will hit incomes and slow job growth” across nearly all nations. The United States, Canada, Mexico, and China are specifically identified as significant contributors to this global economic deceleration, highlighting the broad reach of the trade conflict’s repercussions.
Adding to the concerns, the OECD predicts that protectionism will exert upward pressure on inflation, leading to higher prices for goods and services. This contradicts the stated aim of tariffs to benefit domestic industries, suggesting a potential boomerang effect on consumer spending. For developing nations, already grappling with substantial debt, this inflationary pressure could exacerbate their financial vulnerabilities and debt refinancing challenges.
To mitigate these risks, the OECD urges central banks to remain vigilant about inflation, even if immediate interest rate hikes are not expected. The Bank of Canada, for example, is advised to be prepared for potential policy adjustments if inflationary pressures mount. The report also emphasizes the crucial role of increased investment in stimulating economic growth and improving public finances, though it acknowledges the fiscal constraints faced by highly indebted governments.