Trade Tensions Loom As OECD Warns Of Tariff Shock While Global Growth Holds Steady

The Organisation for Economic Co-operation and Development (OECD) has released its latest global economic outlook, cautioning that the full impact of the United States’ tariff escalation is yet to materialize, even as global growth projections for 2025 show modest improvement. The report, published on September 23, 2025, revises upward the global GDP forecast to 3.2 percent for 2025, from a previous estimate of 2.9 percent, while maintaining a steady 2.9 percent projection for 2026.

 

Despite the upward revision, the OECD warns that trade fragmentation, rising protectionism, and policy uncertainty—particularly stemming from the US tariff regime—could weigh heavily on investment, employment, and income growth in the coming quarters.

 

Key Highlights From The OECD Forecast

 

- Global GDP growth forecast revised to 3.2 percent in 2025, up from 2.9 percent  

- 2026 global growth projection remains unchanged at 2.9 percent  

- US growth expected to slow to 1.8 percent in 2025 (previously 1.6 percent) and 1.5 percent in 2026  

- China’s growth forecast raised to 4.9 percent in 2025 and 4.4 percent in 2026  

- Euro area growth seen at 1.2 percent in 2025 and 1.0 percent in 2026  

- Japan’s growth outlook improves to 1.1 percent in 2025 and 0.5 percent in 2026  

- UK growth forecast nudged to 1.4 percent in 2025 and held at 1.0 percent for 2026  

 

US Tariff Shock: Delayed But Inevitable

 

The OECD’s report underscores that the full brunt of the US tariff shock has not yet been felt. While the American economy has shown resilience in the short term, the cumulative effect of elevated import duties—some reaching 50 percent on steel and automobiles—could dampen household consumption and business investment.

 

The effective tariff rate on US merchandise imports has surged to 15.4 percent, the highest since 1938. This is expected to:

 

- Increase input costs for manufacturers  

- Reduce consumer purchasing power  

- Slow down capital expenditure and hiring  

- Trigger retaliatory measures from trade partners  

 

The OECD warns that if trade barriers persist or escalate, the downside risks to growth could intensify, especially in sectors reliant on global supply chains.

 

Global Growth: Mixed Signals Across Regions

 

While the global economy is projected to grow faster than previously expected in 2025, the regional outlook remains uneven. China’s growth forecast has been revised upward due to stronger-than-expected domestic consumption and stimulus measures, while Japan and the euro area show modest improvements.

 

China’s revised forecast of 4.9 percent for 2025 reflects:

 

- Recovery in industrial output  

- Stabilization of property markets  

- Expansion in retail and services sectors  

 

Japan’s growth upgrade to 1.1 percent is attributed to:

 

- Robust export demand  

- Fiscal support for SMEs  

- Gradual recovery in tourism and domestic consumption  

 

The euro area’s modest uptick to 1.2 percent is supported by:

 

- Easing energy prices  

- Improved labor market conditions  

- Stabilization in manufacturing activity  

 

UK growth is expected to remain stable, with a slight improvement to 1.4 percent in 2025, driven by resilient consumer spending and a rebound in business investment.

 

Inflation And Monetary Policy Outlook

 

The OECD notes that inflationary pressures remain elevated, particularly in the United States, where headline inflation is expected to approach 4 percent by year-end. This could prompt more aggressive monetary tightening, further complicating the growth outlook.

 

Central banks across advanced economies are expected to:

 

- Maintain cautious rate stances  

- Monitor wage growth and core inflation trends  

- Balance inflation control with growth support  

 

Policy Outlook

 

The OECD calls for coordinated global action to reduce trade tensions and restore investor confidence. Key recommendations include:

 

- Reversing recent tariff hikes  

- Enhancing multilateral trade frameworks  

- Providing targeted fiscal support to vulnerable sectors  

- Accelerating structural reforms to boost productivity and investment  

 

Growth Horizon

 

While the headline numbers suggest resilience, the OECD’s warning on delayed tariff impacts and persistent policy uncertainty signals a fragile recovery. As trade negotiations unfold and monetary policy recalibrates, the global economy faces a delicate balancing act between protectionism and progress.

 

Sources: OECD Economic Outlook Volume 2025 Issue 1, Economic Times, India Today Business Desk.