OECD expects tariff blows ahead despite expectation-defying global growth

Global growth is proving sturdier than expected, but the hit from higher ￰0￱ tariffs has not fully shown up ￰1￱ now, strong spending on artificial intelligence in the United States is supporting activity, while government measures are softening China’s ￰2￱ Paris-based OECD said many companies have cushioned the tariff shock by accepting lower profit margins and drawing down inventories after stockpiling ahead of recent hikes that pushed the effective ￰3￱ rate on goods to an estimated 19.5% by end-August, the highest since ￰4￱ OECD has upgraded projections for 2026 The OECD said the world economy is now expected to slow only slightly to 3.2% in 2025 from 3.3% in 2024 instead of the 2.9% it forecast in ￰5￱ outlook for 2026 stays at 2.9%.

The report says the temporary lift from inventory building is fading, and the step-up in trade barriers will increasingly weigh on investment and cross-border ￰6￱ is seen easing to 1.8% in 2025, higher than the 1.6% estimate in June, after 2.8% in 2024, before slowing to 1.5% in 2026, unchanged from the prior ￰7￱ OECD said an AI-investment boom, fiscal support and further Federal Reserve rate cuts should offset part of the drag from higher tariffs. China’s expansion is expected to cool in the second half of the year as exporters lose the rush to ship before ￰8￱ take hold and as fiscal support ￰9￱ the euro area, the lift from lower interest rates is being blunted by weak trade and geopolitical ￰10￱ bloc is projected to grow 1.2% in 2025 and then slow down to 1.0% in ￰11￱ is set to benefit this year from strong corporate earnings and a rebound in investment, taking growth to 1.1%, up from 0.7% ￰12￱ UK outlook was nudged higher to 1.4% growth in 2025 from 1.3%, while the 2026 forecast stays at 1.0%.

Central banks expected to cut rates The OECD said most major central banks are expected to cut interest rates further or keep policy loose over the coming year if inflation keeps ￰13￱ projects additional Fed rate reductions as the ￰14￱ market cools, unless the tariff shock fuels broader price pressures. Australia, Britain, and Canada are seen lowering borrowing costs ￰15￱ European Central Bank is expected to hold policy steady with inflation close to its 2% goal, while the Bank of Japan is likely to raise rates as it continues to unwind ultra-loose ￰16￱ OECD also upgraded its view for 2025 itself, saying, “Global growth was more resilient than anticipated in the first half of 2025, especially in many emerging-market economies.” It added: “Industrial production and trade were supported by front-loading ahead of higher ￰17￱ AI-related investment boosted outcomes in the United States and fiscal support in China outweighed the drag from trade headwinds and property market weakness.” Even so, the report warns the tariff shock is still working its way through the global economy.

“US bilateral tariff rates have increased on almost all countries since ￰18￱ overall effective US tariff rate rose to an estimated 19.5% at the end of August, the highest rate since 1933,” the OECD ￰19￱ inflation across the G20 is now expected to be 3.4% in 2025, slightly below June’s 3.6% ￰20￱ the U. S., the inflation projection was cut to 2.7% for 2025 from 3.2%. Get $50 free to trade crypto when you sign up to Bybit now