OECD says US, Europe, China seen Major Fall in
Growth Following Trump Tariff
President Trump’s trade war is still
playing out, and the full effect will be felt heading into next year, the
latest projections show.
The OECD warned Tuesday that President
Trump’s escalating tariff war is dampening investment, trade, and consumption,
with global growth projected to slow from 3.2% in 2025 to 2.9% in 2026.
·
U.S. Impact: Tariffs, now averaging 19.5%
(highest since 1933), are beginning to squeeze consumers. U.S. growth is
expected to cool from 2.8% in 2024 → 1.8% in 2025 → 1.5% in 2026,
despite AI-driven investment.
·
Europe & China: Europe
faces just 1.2% growth in 2025, dropping further to 1% in 2026. China,
hit hard by U.S. duties, is forecast to slow from 5% in 2024 to 4.4% in 2026.
·
Financial Stress: Rising
debt and deficits are straining governments. Safe-haven demand has pushed gold
above $3,770/oz (up 40% in 2025). Bond spreads in France and record-high
U.S. Treasury yields underscore investor unease.
·
OECD Message: Secretary-General Mathias
Cormann urged governments to resolve trade tensions and restore
stability to global markets.
President
Trump’s efforts to reshape global trade with punitive tariff policies are pushing
the United States and major economies toward slower economic growth, increasing
uncertainty, and cooling investment and trade, according to projections released
Tuesday (23.09.2025).
The
full impact of the higher U.S. tariffs is still playing out, but effects are beginning
to be felt by American consumers, who are starting to curb spending, and in labor markets in countries where the duties have led companies
to shed workers or curb hiring, the Organization for Economic Cooperation and Development,
an intergovernmental group based in Paris, said in its latest outlook.
The
global economy is forecast to grow 3.2 percent this year, compared with 3.3 percent
in 2024. The estimate is a touch larger than previously expected because America’s
trading partners ramped up manufacturing to get their goods across the U.S. border
before the tariffs kicked in, the organization said.
Mr.
Trump imposed tariffs, including duties of up to 50 percent on foreign steel
and aluminum, on once-close trading partners like the
European Union, Canada and India, as well as on longtime rivals like China. The
new overall effective U.S. tariff rate — now at an estimated 19.5 percent, the highest
since 1933 — has slowed economic and trade activity.
As
the full brunt of the tariffs ricochets through supply
chains and labor markets and changes consumer behavior, global growth will slow to 2.9 percent in 2026, the
economic organization said.
“The
global economy was more resilient than anticipated in the first half of 2025, but
downside risks loom large as higher barriers to trade and geopolitical and policy
uncertainty continue to weigh on activity in many economies,” the report said.
The
United States will start to feel the impact heading into next year, according to
the report. Its economy has been bolstered by large investments in artificial
intelligence, and the higher costs of imports has so far been modest as firms use
inventories and profit margins to avoid or absorb the initial effect of the tariffs.
But
private consumption growth in the United States has already started to weaken, and
economic momentum will be “more than offset by higher tariff rates, as well as a
drop in net immigration,” the organization said. The U.S. economy is projected to
slow to 1.8 percent this year from 2.8 percent in 2024, and cool further to 1.5
percent in 2026.
Europe
is expected to grow even more slowly, just 1.2 percent this year and 1 percent in
2026, amid “increased trade frictions and geopolitical uncertainty,” the organization
said. In China, which has been hit hard by Mr. Trump’s trade war and punitive tariffs,
growth is projected to slow to 4.9 this year, from 5 percent last year, and to 4.4
percent in 2026.
Inflation
is expected to decline in most major economies because of slower growth and weaker
employment, but central banks should remain “vigilant,” the report said. Governments
saddled with rising debt and widening deficits also need to do more to get their
financial houses in order.
Financial
markets are increasingly reflecting the global uncertainty, and there is growing
concern about risks, the report added. Ten-year U.S. Treasury bonds, a benchmark
of stability, are now commanding historically high premiums.
In
France, which has been racked with political instability and a ballooning debt and
deficit, the sovereign bond spread relative to Germany’s has been widening. Spot
prices for gold, considered a safe haven, have risen around 40 percent since the
start of this year and climbed on Tuesday to a fresh record high above $3,770 an
ounce.
“To
strengthen economic growth prospects, a key priority is to ensure a lasting resolution
to trade tensions,” Mathias Cormann, the organization’s secretary general, said
in a statement. “We recommend that governments engage productively with one another
to make international trading arrangements fairer and function better.”