The Organization for Economic Cooperation and Development downgraded its growth projections for both the U.S. and the global economy Tuesday, citing the threat posed by President Trump’s new tariff regime as the leading cause of the darkening outlook.
“Global economic prospects are weakening, with substantial barriers to trade, tighter financial conditions, diminishing confidence and heightened policy uncertainty projected to have adverse impacts on growth,” the OECD said. “Lower growth and less trade will hit incomes and slow job growth.”
The intergovernmental organization, which has 38 member nations with relatively advanced economies, reduced its GDP growth estimate for the U.S. to 1.6% in 2025 and 1.5% in 2026, assuming tariffs stay at mid-May levels. As recently as March, the OECD was projecting a 2.2% growth rate for the U.S. this year.
Globally, the OECD reduced its growth estimate from 3.1% to 2.9% in 2025, and from 3.0% to 2.9% in 2026. The most pronounced slowdowns are expected to be seen in the countries most directly affected by Trump’s tariff policies: the U.S., Canada, Mexico and China, with Mexico growing just 0.4% this year. Other nations will see smaller drags on growth.
Inflation gets stickier: Even as they slow growth, the tariffs will put upward pressure on prices. The OECD now projects an average inflation rate in member nations of 4.2% in 2025, and 3.2% in 2026. In December, those projections stood at 3.7% and 2.9%, respectively.
“For most countries, inflation will stay a bit higher for longer ... even though we do think that by the end of '26, they'll be closer to their targets,” OECD Chief Economist Álvaro Santos Pereira told reporters Tuesday.
A growing chorus: Trump’s tariffs have prompted other leading forecasters to reduce their economic growth estimates. The Federal Reserve cut its projection for growth in 2025 from 2.1% to 1.7%, while Goldman Sachs reduced its growth projection from 2.2% to 1.7%.
James Knightley, chief international economist at ING, told The Wall Street Journal that the OECD downgrade “adds more credibility to the private-sector view that the U.S. economy will feel a cold wind until we start getting clarity on the trade and tax environment that businesses and households will face.”
Knightley added that the OECD report supports the view that “while Donald Trump’s policies may generate some positives for the U.S. economy over time, there will be a tricky and potentially quite painful transition period for parts of the economy.”
The bottom line: The downgrades from the OECD reflect the strains in the global economy produced by Trump’s trade war, and much depends on how the battle over tariffs plays out. If Trump pulls back and leaves only modest tariff increases in place, the outlook could improve considerably. But if Trump shifts the trade war into a higher gear, the results could be worse, featuring an unsteady mix of stagnating growth and inflationary pressure that ripples through the U.S. and global economies.