Trade tensions and geopolitical uncertainties are weighing on economic perspectives, the Organisation for Economic Co-operation and Development (OECD) said yesterday as it lowered its projections for global growth this year.
"We are navigating troubled waters," OECD chief economist Alvaro Santos Pereira said as he summed up the world’s economic situation in the coming months, with inflation set to rise.
US President Donald Trump’s return to the White House is in part responsible for the coming turbulence, the OECD said in its report, with his protectionist policies sparking trade wars and driving up inflation.
Photo: AFP
While global economic activity remained "resilient" last year with a 3.2 percent increase in GDP, the OECD trimmed back its projection for this year from 3.3 percent growth to 3.1 percent.
That was due to "higher trade barriers in several G20 economies and increased geopolitical and policy uncertainty weighing on investment and household spending."
The Paris-based OECD’s projections were based primarily on weaker expected growth in the US and the eurozone.
US growth is expected to be 2.2 percent this year, down from the OECD’s 2.4 percent projection in December last year, before falling to 1.6 percent next year — a drop of 0.5 percentage points on the OECD’s previous forecast.
Likewise, the eurozone growth projection is down from 1.3 percent three months ago to just 1.0 percent, but will continue its upward trajectory from 0.7 percent last year, reaching 1.2 percent next year.
China, meanwhile, is expected to maintain healthy growth at 4.8 percent this year and 4.4 percent the following year.
But trade wars sparked by Trump’s protectionist policies are due to drive inflation "to be higher than previously expected" levels.
"Core inflation is now projected to remain above central bank targets in many countries in 2026, including the United States," the OECD said.
US inflation is now expected to accelerate to 2.8 percent this year, up 0.7 percentage points from the previous projection and above last year’s 2.5 percent. The OECD said its projections took into account new tariffs between the US and its neighbors Canada and Mexico, both of whom are likely to be heavily affected by Trump’s policies.
The OECD slashed its projection of Canada’s growth from 2.0 percent to just 0.7 percent, while it now forecasts a 1.3 percent contraction in Mexico’s economy having previously predicted 1.2 percent growth for this year.
The OECD also took into account new tariffs on trade between the US and China and those imposed on steel and aluminum, but not any threatened reciprocal levies nor any concerning the European Union.
"European economies will experience fewer direct economic effects from the tariff measures" than Canada and Mexico, the OECD said, "but heightened geopolitical and policy uncertainty is still likely to restrain growth".
For the second report in succession, the OECD has lowered its growth expectations for both France and Germany — down to 0.8 and 0.4 percent respectively.
Britain’s forecast is also down to just 1.4 percent, with only Spain amongst major European nations bucking the trend and set to maintain its recent strong performance with 2.6 percent growth predicted for this year.
The OECD said that "significant risks remain" as further tit-for-tat tariffs between major global economies "would hit growth around the world and add to inflation."
However, one element that could ease the short-term pressure on the global economy is European nations’ vows to boost defense spending in the face of the threat from Vladimir Putin’s Russia and reluctance from Trump to continue Washington’s bankrolling of NATO.
An increase in defense spending could "support growth in the near-term, but potentially add to longer-term fiscal pressures," the OECD said.
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