OECD slashes growth forecasts to pandemic-era lows as tariff chaos grips major economies – with US set to be hit HARDEST
The global economy is heading for its worst performance since the devastating Covid-19 recession, with growth set to plunge to just 2.9 per cent – a shocking new report reveals today.
In a damning assessment that will send shockwaves through financial markets, the Organisation for Economic Co-operation and Development (OECD) has dramatically slashed its forecasts for virtually every major economy on the planet.
The Paris-based think tank warned that President Donald Trump’s aggressive trade war is creating an “increasingly challenging” environment that threatens to derail the fragile post-pandemic recovery.
AMERICA FACES DRAMATIC SLOWDOWN
The United States – once the engine of global growth – faces a particularly brutal reality check. The world’s largest economy will see growth collapse from 2.8 per cent last year to just 1.6 per cent in 2025, according to the OECD’s latest projections.
This represents a savage downgrade from the 2.2 per cent growth forecast just three months ago, before Trump unleashed his tariff bombshell on “Liberation Day” – April 2, 2025.
The downgrade stems primarily from President Trump’s tariff policies, which raised effective U.S. Import tariffs to 15.4%, the highest since 1938.
TRADE WAR REACHES WARTIME LEVELS
In an unprecedented move that hasn’t been seen since the darkest days of World War Two, the increase in the average effective tariff rate in the US is still “unprecedented”: from 2.5% to more than 15% – the highest level since the Second World War, the OECD noted.
The knock-on effects are already rippling across the globe, with America’s closest trading partners facing economic carnage:
- Mexico: Growth to plummet by more than two-thirds to just 0.4%
- Canada: Economy to crawl along at a mere 1% growth
- China: Growth to slow from 5% to 4.7% this year
INFLATION NIGHTMARE RETURNS
Perhaps most alarmingly for ordinary families, the spectre of runaway inflation is rearing its ugly head once again. In part as a result, inflation in the US is expected to rise to almost 4 percent by the end of 2025 and remain above the Fed’s target in 2026, meaning the country’s central bank is likely to wait until next year before cutting interest rates, the OECD said.
This means the Federal Reserve – America’s central bank – will be forced to keep interest rates painfully high, squeezing homeowners and businesses alike.
GLOBAL MELTDOWN SPREADS
The contagion is spreading far beyond America’s shores. Overall, the OECD’s forecast for this year has been cut for about three-quarters of the G20 countries compared to its interim forecast in March.
Key casualties include:
- Japan: Growth to limp along at just 0.7% this year
- UK: Downgraded to 1.3% growth amid Brexit and tariff uncertainties
- Eurozone: Stuck in the slow lane with just 1% growth
- France: Facing near-stagnation at 0.6% growth
‘HUGE CONSEQUENCES FOR EVERYONE’
In stark comments that underline the gravity of the situation, OECD Chief Economist Alvaro Pereira delivered a chilling warning to world leaders.
The reasons why we downgraded almost everybody in our forecast is that trade uncertainty and economic policy uncertainty has reached unprecedented levels,” he told CNBC, adding ominously: “This will have huge consequences for everyone.
Pereira stressed that countries urgently need to strike deals to reduce trade barriers, warning: “Otherwise, the impact on growth will be very significant.
WORST SINCE COVID CATASTROPHE
The comparison to the pandemic-era economic collapse is particularly sobering. The global economy is experiencing its weakest growth since the COVID-19 recession, amid President Donald Trump’s trade war undermining the momentum of leading economies, including the United States, according to OECD forecasts
The figure has also surpassed 3% every year since 2020, when output dropped because of the pandemic. Now, with growth set to fall below this crucial threshold, economists fear a prolonged period of stagnation.
The OECD’s report paints a picture of an economy teetering on the brink:
- Business confidence has collapsed
- Consumer spending is weakening
- Investment plans are being shelved
- Supply chains remain disrupted
- Financial markets face “disruptive repricing”
STOCK MARKET BUBBLE FEARS
Adding to the toxic mix, the OECD warned that “Historically inflated” stock valuations increase vulnerability to negative shocks in financial markets.
This raises the spectre of a potential market crash that could compound the economic misery for millions of investors and pension savers.
THE BOTTOM LINE
As the world economy stands at this critical juncture, the message from the OECD is crystal clear: without urgent action to reduce trade tensions and restore confidence, the global economy faces its darkest hour since the Covid catastrophe brought the world to its knees.
For ordinary families already struggling with the cost-of-living crisis, the prospect of another economic downturn will be a bitter pill to swallow. The question now is whether world leaders can pull back from the brink before it’s too late.
