The OECD released its interim economic outlook report for 2025 in mid-March, and it does not make for pretty reading. Right off the bat, the report points out that, while the global economy was resilient in 2024, this year will be underwhelming in several respects.
As a result, growth projections will be less optimistic than previously thought, and global GDP is now expected to grow by 3.1% in 2025 as against the previous 3.3%.
There are many reasons for the downward revision to global growth prospects but one term seems to dominate the discourse – “uncertainty”. Due to world trade tensions, increasing trade barriers in various G20 economies, and growing policy uncertainty, the global economy may not do so well this year – or in 2026. In this brief piece, I take a look at seven key data points from the report that I think are worth highlighting.
Global and regional GDP growth
The global economy demonstrated resilience in 2024, achieving a growth rate of 3.2%. However, this growth is expected to moderate in the coming years, with projections of 3.1% in 2025 and 3.0% in 2026. This slowdown is attributed to higher trade barriers, especially due to a threatening wave of tariff changes that could upend global trade, and increased policy uncertainty, which are likely to weigh on investment and household spending.
In the United States, growth is anticipated to decelerate to 2.2% in 2025 and further to 1.6% in 2026. The Euro Area is also expected to experience modest growth, with forecasts of 1.0% in 2025 and 1.2% in 2026. Meanwhile, China’s growth is predicted to decrease from 4.8% in 2024 to 4.4% in 2026. These regional projections reflect the broader global trend of slowing economic activity.
Inflation
Inflationary pressures remain a significant concern for the global economy. Headline inflation in G20 economies is projected to fall from 3.8% in 2025 to 3.2% in 2026. Despite this decline, underlying inflation is expected to stay above central bank targets in many countries through 2026. This persistent inflation is driven by factors such as elevated services price inflation, which has a median rate of 3.6% across OECD economies.
The report emphasizes the need for policymakers to address these inflationary pressures to ensure economic stability. Many central banks are already taking effective measures to deal with these inflationary pressures. So, I think it’s more about policy consistency at this point rather than the deployment of elaborate measures.
Trade fragmentation impact
One of the most significant risks highlighted in the report is the potential impact of further trade fragmentation. Increased trade barriers and geopolitical tensions could reduce global output by around 0.3% and increase global inflation by 0.4 percentage points per annum over the next three years.
Trade fragmentation can disrupt supply chains, increase costs for businesses, and reduce consumer access to goods and services. Policymakers must work towards reducing trade barriers and promoting a more integrated global economy to mitigate these adverse effects.
Investment and household spending
Higher trade barriers and increased policy uncertainty are expected to weigh on investment and household spending, contributing to the moderation in global growth. Businesses may become more cautious in their investment decisions, while households might reduce their spending due to concerns about economic stability.
Infrastructure projects, tax incentives, and social safety nets can play a crucial role in stimulating economic activity and supporting growth. Governments will play a key part in enabling these measures through policies that encourage investment and boost consumer confidence.
Geopolitical and policy uncertainty
The report highlights significant risks due to geopolitical and policy uncertainty, which could disrupt financial markets and economic stability. Events such as trade disputes, political conflicts, and changes in government policies can create uncertainty and volatility in the global economy.
Policymakers must navigate these uncertainties by fostering international cooperation, maintaining transparent and predictable policies, and addressing potential sources of conflict.
Potential upside
Despite the challenges, the report also identifies potential upsides to the economic outlook. Agreements that lower tariffs from current levels could result in stronger global growth, providing a positive boost to the baseline projections. Such agreements can enhance trade, reduce costs for businesses, and increase consumer access to goods and services.
Policymakers should pursue opportunities for international cooperation and trade agreements that can unlock these potential upsides. By fostering a more integrated and cooperative global economy, they can help drive sustainable growth and improve economic prospects.
