World economy yet to feel full impact of Trump's tariffs, warns OECD

By William Horobin

   

The global economy is still on course for a substantial blow from Donald Trump’s trade measures despite showing greater resilience than expected in recent months, the OECD said. 

In new forecasts published on Tuesday, the Paris-based organization raised its 2025 outlook for world growth and most individual economies, citing the impact of front-loading in anticipation of higher tariffs. The US also saw strong investment in artificial intelligence, while China benefited from fiscal support. 

 

But the OECD made little change to its 2026 predictions, when it expects global growth to drop to 2.9 per cent from 3.2 per cent this year and expansion in the US to slow to 1.5 per cent from 1.8 per cent amid higher import duties and elevated uncertainty.

 

The full impact from an overall effective tariff rate imposed by the White House of 19.5 per cent — the highest since 1933 — has yet to be felt, officials said.

 

“It’s a significant hit for the US economy and because the US economy is such an important economy for the rest of the world, this is having implications for many countries,” OECD Chief Economist Alvaro Santos Pereira said in an interview.

 

The fallout from Trump’s attempt to rewrite the rules of global trade has been hard to gauge for economists due to both the scale of policy changes and the unpredictability of implementation.  

 

While the effects of advancing goods imports are fading and any dent on real activity remains to be seen, the OECD said consequences are already visible in some consumer prices and spending choices. It also cited a softening of labor markets with rising unemployment and declining job openings, and said recent business surveys show signs of moderation.

 

“It is important that countries continue to talk and are able to get agreements to reduce trade barriers because we know that more trade is good for growth,” Pereira said.

 

The OECD said inflation is expected to decline in most major economies with slower growth and weaker employment pressures. But it said central banks should remain “vigilant.”

 

For the Federal Reserve, the OECD expects a gradual easing of rates over the coming year as labor markets ease, so long as tariffs don’t trigger broader inflation. 

 

Overall, the organization said there are “significant risks” to its interim outlook, including the possibility of further trade levies or a resurgence of price increases.