Port of Pyeongtaek-Dangjin in South Korea / News1
Port of Pyeongtaek-Dangjin in South Korea / News1

U.S. President Donald Trump’s trade wars are expected to weigh on global economic growth, the Organisation for Economic Co-operation and Development (OECD) said. The Paris-based institution lowered its global GDP growth forecast for this year to 3.1%, down 0.2 percentage points from its earlier projection in December.

“Global GDP growth is expected to moderate from 3.2% in 2024 to 3.1% in 2025 and 3.0% in 2026, with higher trade barriers in several G20 economies and increased policy uncertainty weighing on investment and household spending,” the OECD said on March 17 in its interim Economic Outlook report. The annual GDP growth outlook for this year and next year has been revised down by 0.2 percentage points and 0.3 percentage points, respectively, from December.

The OECD publishes interim economic outlooks in March and September every year and releases complete economic forecasts in May–June and November–December. If this projection turns out to be accurate, global growth in 2025 and 2026 will be the weakest since 2020 when the COVID-19 pandemic triggered a 3% contraction.

The report points to “further fragmentation of the global economy” caused by higher tariffs as a “key concern” that could harm global growth prospects. “One possible risk is the escalation of trade restrictive measures,” the OECD noted, which could decrease trade volumes and push up import prices. The rise of protectionist policies has forced governments to boost defense spending, adding to long-term fiscal pressure. Based on such concerns, the OECD raised inflation projections to 3.8% this year and 3.2% next year, both up 0.3 percentage points from the previous forecast.

Countries with close trade ties to the U.S. are expected to be hit the hardest as Trump’s proposed tariffs take effect. Canada’s growth forecast for this year was cut by 1.3 percentage points to 0.7% in the latest report, while Mexico’s was slashed by 2.5 percentage points to -1.3%.

The OECD trimmed South Korea’s growth forecast by 0.6 percentage points to 1.5% this year. The revision aligns with the Bank of Korea’s latest outlook but is lower than estimates from the Korea Development Institute (1.6%) and the government (1.8%).

“Traditional diplomatic and security allies were previously bound by economic cooperation, but the Trump administration has introduced a new paradigm in which economic benefits determine trade relations, even among allies,” said Ahn Dong-hyun, a professor of economics at Seoul National University.

Annual GDP growth for the U.S. was lowered from 2.4% to 2.2%. The OECD also cut forecasts for growth in Japan, Germany, and the UK. “Euro area real GDP growth is projected to be 1.0% in 2025 and 1.2% in 2026, as heightened uncertainty keeps growth subdued,” the report noted. European economies are struggling with the fallout from U.S. trade policies and ongoing uncertainty from the Russia-Ukraine war.

However, the OECD raised China’s growth forecast for this year by 0.1 percentage points. “The Chinese economy is expected to grow by 4.8% in 2025 as the negative impact of tariffs is largely offset by stronger policy support before slowing to 4.4% in 2026.