global growth falters: trade wars and uncertainty take their toll

2025-03-17 general

Paris, Monday, 17 March 2025.
The OECD has revised its global growth forecast downward to 3.1% for 2025. Escalating trade tensions, particularly those involving the U.S. since Trump’s return, are a primary cause. These tensions are impacting investment and household spending. The semiconductor industry is particularly vulnerable. Further tariff increases between major economies could further dampen growth and increase inflation. The eurozone growth projection has been reduced to 1.0%. The U.S. growth is expected to be 2.2% in 2025, before falling to 1.6% in 2026.

revised growth forecasts

The Organisation for Economic Co-operation and Development (OECD) has tempered expectations, adjusting its 2025 global growth projection from 3.3% to 3.1% [1][7]. This revision reflects concerns over escalating trade barriers and heightened geopolitical uncertainty since Donald Trump’s return to the U.S. presidency [1][8]. These factors are expected to weigh heavily on investment and household spending, creating a ripple effect across various sectors [2]. The OECD’s report highlights that increasing trade barriers and geopolitical instability are creating pressure on both investment and consumer spending [2][7].

impact on major economies

The U.S. economy is projected to grow by 2.2% in 2025, a decrease from the previously forecasted 2.4% [1]. Further deceleration is anticipated in 2026, with growth slowing to 1.6% [1]. The Eurozone faces similar challenges, with its growth projection for 2025 revised downward from 1.3% to 1.0% [1]. China, however, is expected to maintain a relatively robust growth trajectory, projecting growth of 4.8% in 2025 and 4.4% in 2026 [1]. These adjustments reflect the broad impact of trade tensions and policy uncertainties on major global economies [2][3].

inflationary pressures and monetary policy

The OECD forecasts that higher trade barriers will exacerbate inflationary pressures, potentially prompting central banks to tighten monetary policy [2][3]. The report anticipates that the overall inflation rate for G20 countries will decrease from 5.3% in 2024 to 3.8% in 2025 and 3.2% in 2026 [3]. However, core inflation in developed economies is expected to remain above target levels in many countries through 2026 [3]. Specifically, the U.S. inflation rates for 2025 and 2026 are projected to be 2.8% and 2.6%, respectively, marking an upward revision from previous estimates [3].

investor considerations and market risks

From an investor’s perspective, these revised projections signal increased market volatility and the need for a more cautious approach. Sectors heavily reliant on international trade, such as semiconductors, are particularly exposed to downside risks [1]. The OECD cautions that further escalation of trade disputes could trigger a global economic slowdown and intensify inflationary pressures [1][2]. Investors should closely monitor policy responses from central banks, as tighter monetary policies could further impact financial markets [3]. Diversification and a focus on defensive stocks may be prudent strategies in this environment [GPT].

defense spending and fiscal policy

The OECD suggests that increased defense spending, driven by geopolitical tensions, could provide near-term economic stimulus but may also create longer-term fiscal challenges [1]. European nations are increasing military expenditure due to concerns about Russian aggression and uncertainty regarding U.S. commitment to NATO [1]. While defense spending might boost certain sectors, investors should be aware of the potential for increased government debt and the implications for future fiscal sustainability [2]. Prudent fiscal discipline is essential for governments to maintain the capacity to respond to future economic shocks [3].

Bronnen

trade barriers economic growth