By Africalivenews Staff
The Organization for Economic Cooperation and Development (OECD) has issued a stark warning about the state of the global economy, forecasting a noticeable deceleration in growth over the next two years. According to its latest Economic Outlook report, released in Paris on Tuesday, a combination of rising trade tensions, higher interest rates, and waning consumer confidence is expected to weigh heavily on the global recovery.
The OECD revised its projections for global GDP growth in 2025 and 2026, trimming expectations by 0.2 and 0.1 percentage points respectively. The revised estimates reflect concerns that global financial conditions remain tight, with persistent inflationary pressures and a lack of progress on trade liberalization.
“Global growth is slowing as the impact of tighter monetary policy, subdued investment, and weakening confidence begins to bite,” the OECD said in its report. “While inflation is gradually easing, a full recovery remains fragile and uneven.”
US Growth Hit by Higher Inflation and Slowing Demand
The United States, the world’s largest economy, is expected to be particularly affected. The OECD slashed its 2025 growth forecast for the US to just 1.6 percent — a sharp 0.6 percentage point drop from its earlier projection in March. The downgrade reflects a combination of rising borrowing costs, declining investment activity, and persistent inflation.
Although inflation has been receding across most developed nations, the OECD increased its inflation forecast for the United States in 2025 by 0.4 percentage points, bringing it to 3.2 percent. That figure is still above the Federal Reserve’s 2 percent target, raising questions about the likelihood of rate cuts in the near term.
“The persistence of inflationary pressures in the United States, despite a slowdown in economic activity, poses a serious policy dilemma,” the OECD stated. “The Federal Reserve may need to maintain tighter financial conditions longer than anticipated to bring inflation back to target.”
A Risky Global Landscape: Trade Barriers and Uncertainty
One of the key concerns outlined in the report is the rise in global trade restrictions. Despite ongoing legal disputes at the World Trade Organization (WTO), the OECD assumes that all tariff rates and trade barriers in effect as of mid-May 2025 will remain unchanged through the forecast period.
This assumption, the report warns, could weigh heavily on global trade, investment flows, and supply chain resilience.
“The resurgence of protectionism and a retreat from open markets have become a major drag on international economic cooperation,” the OECD emphasized. “If such trends continue, they risk undermining the foundations of global growth.”
The economic body also highlighted the impact of growing policy uncertainty across major economies, with geopolitical tensions, elections in key markets, and fragmented fiscal agendas contributing to business and consumer anxiety.
“Persistent geopolitical uncertainty and erratic policymaking are weakening investor confidence and delaying key business decisions,” the report cautioned.
Emerging Markets and Developing Economies
Emerging and developing economies face their own set of challenges, including currency depreciation, capital outflows, and increased debt vulnerabilities. For many low-income countries, the cost of borrowing remains prohibitively high, complicating efforts to invest in infrastructure, education, and climate resilience.
“In many developing economies, tight financial conditions are constraining growth and pushing up debt servicing costs,” the OECD noted. “International support and targeted policy interventions are essential to maintain macroeconomic stability and social cohesion.”
Countries heavily reliant on exports are especially vulnerable to the impact of slower demand from advanced economies. The OECD urged policymakers in these nations to focus on diversifying their economic base and strengthening domestic consumption.
G20 Overview: Inflation Declining but Recovery Uneven
The OECD also examined economic trends across G20 nations. On the positive side, inflation is projected to moderate in most G20 countries over the next two years, helped by easing energy prices and supply chain normalization.
However, the pace of recovery remains uneven. While some Asian economies, including India and Indonesia, are expected to maintain strong momentum due to robust domestic demand, others—such as Germany, the UK, and Brazil—face headwinds from weak exports and sluggish investment.
“Although inflation is easing, the economic rebound remains fragile,” said OECD Chief Economist Clare Lombardelli during a press briefing. “The global economy needs a confidence boost, and that can only come from greater policy clarity and enhanced multilateral cooperation.”
Policy Recommendations: Prioritize Stability and Investment
To counter the gloomy outlook, the OECD has called on governments and central banks to pursue coordinated and transparent policies aimed at stabilizing markets and supporting long-term growth.
Among the key recommendations:
- Avoiding premature monetary loosening: The OECD advises central banks to resist cutting interest rates too early, given persistent inflation risks.
- Targeted fiscal support: Governments should focus on helping the most vulnerable households and small businesses, rather than broad stimulus packages that could reignite inflation.
- Revitalizing global trade: Re-engaging in multilateral trade negotiations and reducing barriers is essential to restoring global growth momentum.
- Investing in resilience: Countries should prioritize investments in digital infrastructure, green energy, and workforce development to build more sustainable economies.
“While the global economy is not in crisis, it is facing significant challenges that require decisive and coordinated policy action,” Lombardelli said. “Now is the time for governments to step up and deliver on long-term commitments.”
Conclusion: Uncertainty Clouds the Path Ahead
The OECD’s latest assessment comes at a time of increasing global volatility. While a full-scale recession is not currently forecast, the mounting risks—from trade tensions to policy unpredictability—pose a serious threat to long-term stability.
“Policymakers cannot afford to be complacent,” the report concluded. “A renewed focus on transparency, coordination, and resilience is urgently needed to navigate this complex landscape.”
As the world enters the second half of 2025, the global economic picture remains clouded by uncertainty, but the message from the OECD is clear: without stronger action now, the slowdown could deepen, leaving lasting damage to global prosperity.