The OECD's Economic Outlook, Interim Report March 2025 highlights growing uncertainty in the global economy, with GDP growth expected to slow over the next two years. Despite a resilient 2024, inflationary pressures persist, and geopolitical and policy risks could further fragment global trade, affecting investment and household spending.
Slower global growth expected
The OECD projects that global GDP growth will moderate from 3.2% in 2024 to 3.1% in 2025 and 3.0% in 2026. Rising trade barriers and policy uncertainty in major economies are key factors behind the slowdown. The United States is expected to see a decline in GDP growth from 2.2% in 2025 to 1.6% in 2026, while the euro area will see 1.0% growth in 2025 and 1.2% in 2026. China's economic expansion is also forecasted to slow from 4.8% in 2024 to 4.4% in 2026.
Inflation remains a challenge
Despite some moderation, inflation continues to be a concern. Headline inflation is projected to decrease from 3.8% in 2025 to 3.2% in 2026 across G20 economies. However, underlying inflation is expected to stay above central bank targets in several countries, driven by persistent services price inflation, which remains elevated at 3.6% across OECD economies.
Trade fragmentation poses risks
Geopolitical tensions and increasing trade restrictions present additional risks to economic stability. The OECD warns that further trade fragmentation could reduce global output by around 0.3% by the third year, while also raising inflation by 0.4 percentage points per year. The impact could be amplified if financial markets react with widespread risk repricing, adding downward pressure on corporate and household spending.
Policy recommendations
Monetary policy: maintaining stability amid uncertainty
The OECD advises central banks to remain vigilant, balancing inflation control with economic growth. "Provided inflation expectations remain well anchored, and trade tensions do not intensify further, policy rate reductions should continue in economies in which underlying inflation is projected to moderate and aggregate demand growth is subdued."
Fiscal policy: ensuring debt sustainability
Governments must take decisive fiscal action to maintain debt sustainability and prepare for future economic shocks. The OECD urges policymakers to reallocate spending, enhance revenues, and implement credible medium-term adjustment plans tailored to country-specific needs.
Structural reforms: strengthening long-term growth
To counteract the effects of rising protectionism and weak economic prospects, the OECD calls for ambitious structural policy reforms. It emphasises the need for regulatory changes to encourage competitive market dynamics, reduce constraints in labour markets, and enhance education and skills development. These measures would boost productivity and innovation while increasing workforce participation.
Conclusion
As global growth slows and inflation persists, the OECD's latest Economic Outlook underscores the importance of coordinated international efforts and policy reforms to navigate economic uncertainty. Governments and central banks must strike a delicate balance between controlling inflation, sustaining growth, and maintaining financial stability in an increasingly fragmented global economy.
More information:
OECD
www.oecd.org