Global Economy Facing Weakest Growth Since Pandemic

The global economy is entering a period of the weakest growth since the pandemic downturn in 2020, warns the Organization for Economic Cooperation and Development (OECD) in its latest forecasts. The main cause of the growth slowdown, according to the OECD, is renewed trade tensions, particularly those triggered by a new round of tariff measures from the Donald Trump administration.

In its latest comprehensive report, the OECD has lowered its global economic growth outlook to 2.9 percent for 2025 and 2026, which would mark the first time since the pandemic that the global growth rate falls below 3 percent. In comparison, global growth has not fallen below this level since 2020. A particularly strong slowdown is anticipated for the U.S. economy: from last year’s 2.8 percent to just 1.6 percent in 2025 and 1.5 percent in 2026. Additional pressure is also coming from elevated inflation, which is likely to prevent the U.S. Federal Reserve (Fed) from lowering interest rates this year, estimates the OECD.

Record Tariffs and Uncertainty

The new estimate represents a deterioration compared to the interim forecasts from March, which preceded Trump’s announcement of the so-called ‘freedom day tariffs’ on April 2. At that time, the OECD also warned that trade protectionism could leave a significant mark on global economic activity.

Although the U.S. president has partially eased some tariff measures, the average effective tariff rate in the U.S. has jumped from 2.5 to over 15 percent, reaching the highest level since World War II, the report states. The OECD has also lowered forecasts for nearly all G20 member countries, including China, France, India, Japan, South Africa, and the United Kingdom. According to OECD Chief Economist Álvaro Pereira, it is urgent to reach new agreements that would lower trade barriers.

– Otherwise, the economic effects will be extremely negative. This has massive consequences for everyone – Pereira stated.

Inflation, Interest Rates, and Stagnation

According to new forecasts, U.S. inflation will rise to nearly 4 percent by the end of 2025 and will remain above the Fed’s target throughout 2026, meaning that the central bank may wait until next year for its first interest rate cut. The OECD notes that the latest indicators point to a ‘noticeable slowdown’ in U.S. real GDP, along with a significant rise in inflation expectations.

Economic developments in other key regions are also weak: Chinese growth is expected to fall from 5 percent last year to 4.7 percent in 2025 and 4.3 percent in 2026, while the euro area is projected to grow only 1 percent this year and 1.2 percent in 2026. The Japanese economy is growing minimally at 0.7 percent this year and just 0.4 percent next year. The United Kingdom expects growth of 1.3 percent this year and 1 percent in 2026, which is a deterioration from earlier estimates in March.

Global trade, which was supposed to be the engine of recovery, is now forecasted to grow by 2.8 percent in 2025 and only 2.2 percent in 2026, significantly below expectations from December.

The OECD also warns of rising fiscal risks, particularly due to increasing allocations for defense and security, as well as instability in capital markets. High stock valuations make markets vulnerable to negative shocks, and a prolonged decline in investment further complicates long-term growth prospects.

– Despite rising profits, companies are avoiding investments in the real economy and prefer to accumulate financial assets or pay dividends – the report states. The OECD concludes that stimulating investment will be crucial for strengthening economies and stabilizing public finances.