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Donald Trump’s trade war is taking a “significant toll” on the global economy, the OECD has warned, as it cut growth forecasts for a dozen G20 countries.
Global growth will slow this year and next, from 3.2 per cent last year to 3.1 per cent and 3 per cent in 2025 and 2026 respectively, while inflation will be stickier than previously expected, the Paris-based OECD said in its interim outlook as it urged countries to avoid a “ratcheting up of retaliatory trade barriers”.
GDP growth in the US will decelerate from 2.8 per cent last year to 2.2 per cent this year and 1.6 per cent in 2026, the OECD said. Higher trade barriers will contribute to persistent inflation, leading the Federal Reserve to keep interest rates unchanged until the middle of 2026, it predicted.
“The message is clearly that trade uncertainty and economic policy uncertainty are having a significant toll,” OECD chief economist Álvaro Pereira told the Financial Times.
The analysis — the OECD’s first attempt to quantify the economic drag from the early rounds of Trump’s trade war — suggests that few G20 countries’ growth prospects will remain unscathed, as businesses defer investment because of policy uncertainty and consumers are squeezed by higher goods prices.
The biggest growth downgrades are to Canada and Mexico after Trump’s decision to levy 25 per cent tariffs on most imports from the US’s neighbours. Growth predictions for Canada were more than halved to 0.7 per cent this year and next, while Mexico is now forecast to drop into outright recession this year, contracting by 1.3 per cent.
“Consumer confidence has come down in quite a few countries — in particular Canada, Mexico, the US and a few others,” said Pereira.
A resurgence of inflation or downside surprises to growth could trigger a “rapid repricing” in financial markets, the OECD warned.
Growth in the US this year will be 0.2 percentage points slower than the OECD previously expected, and half a point weaker in 2026 than previously forecast. Those predictions would still leave the US as the fastest-growing G7 economy in both years.
Instead of decelerating, as previously predicted, inflation will now speed up from 2.5 per cent last year to 2.8 per cent in 2025. Core inflation is now projected to remain above central bank targets in many countries in 2026, including the US, the OECD added.
Growth forecasts for the biggest three Eurozone economies have been trimmed, with the currency area predicted to expand by 1 per cent in 2025 and 1.2 per cent in 2026. UK growth forecasts were cut to 1.4 per cent this year and 1.2 per cent in 2026.
Despite Trump’s imposition of 20 per cent additional tariffs on China, the OECD lifted the Asian country’s outlook for 2025, with growth tipped to be 4.8 per cent, followed by 4.4 per cent in 2026.
By contrast, the growth forecast for Japan was curbed by 0.4 percentage points to 1.1 per cent this year, and India’s growth will be half a point lower than previously predicted at 6.4 per cent.
“Governments need to find ways of addressing their concerns together within the global trading system to avoid a significant ratcheting up of retaliatory trade barriers between countries,” the OECD said. “A broad-based further increase in trade restrictions would have significant negative impacts on living standards.”
The organisation sketched out a “downside scenario” under which the US further boosts tariffs on all countries by 10 percentage points and equivalent retaliatory actions are imposed on the US. The level of global GDP would be 0.3 per cent lower by the second and third years of the shock, the OECD said, with global inflation rising 0.4 percentage points a year.
US consumers would be hit hard, equivalent to a reduction of more than $1,600 in real net disposable incomes per household. Interest rates would have to be increased by as much as a percentage point relative to the OECD’s central forecasts over the first three years, while the US effective exchange rate would rise by 1.7 per cent.
The OECD said it saw “significant risks” ahead. “Further fragmentation of the global economy is a key concern,” it added. “Higher and broader increases in trade barriers would hit growth around the world and add to inflation.”
Data visualisation by Keith Fray
