World Economy Forecast by OECD Deteriorates, Projected Growth in 2025 at 2.9%
Global Economic Growth Forecasted to Slow Down in 2025 and 2026, According to OECD
The Organisation for Economic Co-operation and Development (OECD) has revised down its forecast for global economic growth in 2025 and 2026, projecting a modest 2.9% growth in both years. This is a decrease from the 3.3% growth recorded in 2024.
The OECD attributes this subdued outlook to several factors. Substantial increases in trade barriers, tighter financial conditions, weaker business and consumer confidence, and heightened policy uncertainty are key contributors. The intensified trade tensions and tariff measures, such as those imposed by the United States, are expected to stifle economic expansion, affecting not just the US economy but also financial markets worldwide.
Weaker export activity and ongoing investment challenges in developed economies like the euro area are also playing a part. This is partly due to trade policy uncertainties, leading to downward revisions in growth forecasts for regions such as Europe.
Emerging economies like China are experiencing moderate industrial output growth, with China targeting about 5.0% GDP growth in 2025 and 4.7% in 2026. India maintains stable domestic demand-driven growth, with GDP expected to grow by 6.3% in 2025 and 6.4% in 2026.
Political uncertainty and labor market deterioration in some advanced economies, such as Germany and the UK, also contribute to a sluggish growth environment. While defense investments and some fiscal accommodation offer limited positive effects, these are offset by the slow decline in interest rates and stricter fiscal rules, constraining overall economic momentum.
OECD Chief Economist, Álvaro Pereira, warns that the weakening of economic prospects will be felt worldwide. He states, "Slower growth and reduced trade will impact incomes and slow job growth."
In the United States, the economy is predicted to grow by 1.5% in 2026, according to the OECD's forecast. The forecast notes a significant increase in import tariffs and retaliatory measures by some of Washington's trading partners, high economic policy uncertainty, a significant slowdown in net immigration, and a notable reduction in federal employment.
China's economy, despite the challenges, is expected to grow by 4.7% in 2025 and 4.3% in 2026. The eurozone economy is expected to grow by 1% this year and 1.2% in 2026.
The OECD's forecast for the weakest growth since the pandemic is driven by trade conflicts, financial tightening, policy uncertainties, weaker global trade and investment flows, and uneven recoveries across regions. It is a reminder of the ongoing challenges facing the global economy and the need for coordinated policy responses to foster sustainable and inclusive growth.
[1] OECD (2023). Interim Economic Outlook. Paris: OECD Publishing. [2] OECD (2023). Economic Outlook for the United States. Paris: OECD Publishing. [3] OECD (2023). Economic Outlook for China. Paris: OECD Publishing. [4] OECD (2023). Economic Outlook for the Euro Area. Paris: OECD Publishing.
Businesses worldwide may struggle in the slowing global economy forecasted for 2025 and 2026, as tightened financial conditions and weaker consumer and business confidence become more prevalent. These economic factors could deter investment and limit growth opportunities in various sectors of the economy.
Trade tensions and tariff measures, such as those imposed by the United States, pose significant threats to the financial sector, potentially stifling economic expansion and creating volatility within the finance industry.
