OECD Slashes Global Growth Forecast as Trade Tensions Resurface

Economic Outlook Dimmed by Protectionism, High Interest Rates, and Policy Uncertainty

The Organisation for Economic Co-operation and Development (OECD) has significantly revised downward its global economic growth forecast, citing a resurgence of trade tensions, prolonged monetary tightening, and geopolitical instability as major drags on the recovery. The global economy is now expected to grow at 2.4% in 2025, down from the previous forecast of 2.9%.

The downgrade underscores growing concern that the fragile post-pandemic recovery is faltering under the weight of protectionist policies, softening demand in key economies, and persistent inflation risks.

The OECD’s semi-annual Economic Outlook points to widespread vulnerabilities, especially in manufacturing, exports, and cross-border investment, all of which are being disrupted by deteriorating trade relations between major blocs.

Trade Fragmentation Pressures Global Demand

The report highlights the escalation of tariffs and non-tariff barriers—particularly between the U.S., China, and the European Union—as one of the most significant headwinds. Several G20 economies have implemented protectionist measures in recent quarters, reversing the liberalization trend of previous decades.

With global supply chains already strained by recent geopolitical shocks and natural disasters, this trend toward economic fragmentation is raising costs for businesses and consumers alike. The OECD warns that if trade barriers continue to rise, long-term productivity and wage growth could face permanent damage.

Tight Financial Conditions Adding Drag

Another major factor cited in the outlook is the persistence of high interest rates in most advanced economies. While inflation has gradually receded from its peak levels, central banks remain cautious, keeping policy rates elevated to anchor expectations.

This environment has dampened consumer demand, stalled private investment, and increased debt-servicing costs, particularly in emerging markets. Countries with high exposure to foreign-denominated debt—such as Argentina, Turkey, and several Sub-Saharan African economies—are now facing renewed pressure.

The OECD urges central banks to remain data-driven and carefully balance inflation control with the risks of overtightening.

Regional Outlooks Reflect Uneven Recovery

United States: Projected to grow at 1.8%, with consumer spending softening and capital expenditure slowing under high borrowing costs.
Euro Area: Forecast at 1.2%, as Germany and France face manufacturing slowdowns and muted export activity.
China: Growth revised to 4.9%, down from 5.5%, due to weak domestic demand and external headwinds.
India: One of the few bright spots, maintaining a robust 6.5% projection, driven by internal consumption and government infrastructure spending.

Call for Coordinated Policy Action

The OECD is urging member nations to pursue targeted fiscal support, particularly for lower-income households, while avoiding broad-based stimulus that could reignite inflation. It also recommends renewed multilateral engagement to stabilize trade norms and reduce regulatory fragmentation.

The report concludes with a warning: “Without coordinated action, the global economy risks sliding into a prolonged period of low growth, weakened resilience, and rising inequality.”

With multiple shocks converging—trade wars, climate disruptions, and monetary tightening—the revised outlook serves as a clear signal: the world economy is entering a more volatile and unpredictable phase that demands smarter, more unified policymaking.