Donald Trump’s commerce wars are splintering the worldwide economic system and unpicking progress made to reboot progress and deal with inflation, the Organisation for Financial Co-operation and Growth (OECD) has warned.
In its newest replace on the well being of the world economic system, the main Paris-based establishment downgraded the prospects for international progress this 12 months and subsequent, together with a pointy hit to exercise within the US, Canada and Mexico.
The OECD reduce its forecast for UK progress by 0.3 share factors this 12 months to 1.4%, and by 0.1 share factors for 2026 to 1.2%.
The physique representing the world’s richest economies mentioned current increased ranges of financial progress and progress to deliver down inflation was being undermined by the fallout from increased commerce boundaries and mounting geopolitical uncertainty.
Slicing its international progress forecast for this 12 months from 3.3% to three.1%, it mentioned that important dangers nonetheless remained. The worldwide economic system grew 3.2% in 2024.
Larger and broader will increase in commerce boundaries would hit progress and add to inflation, whereas a climbdown would assist scale back uncertainty and strengthen exercise.
“Important dangers stay. Additional fragmentation of the worldwide economic system is a key concern. Larger and broader will increase in commerce boundaries would hit progress around the globe and add to inflation,” the OECD mentioned in its interim financial outlook report.
The OECD mentioned: “Governments want to search out methods of addressing their issues collectively throughout the international buying and selling system to keep away from a big ratcheting-up of retaliatory commerce boundaries between international locations …
“A broad-based additional enhance in commerce restrictions would have important adverse impacts on dwelling requirements.”
Basing its projections on the idea that Trump pushes forward with plans to impose 25% tariffs on virtually all merchandise imports from Canada and Mexico from April, the OECD mentioned exercise can be hit and inflation stoked throughout all three economies.
It mentioned Mexico can be pushed right into a deep recession this 12 months – with output shrinking by 1.3% in 2025 and 0.6% in 2026 – and reduce its forecasts for progress in Canada by virtually half.
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It decreased its US progress forecasts from 2.5% to 2.2% for this 12 months and from 2.1% to 1.6% in 2026 and progress in China is projected to gradual from 4.8% this 12 months to 4.4% in 2026.
As a comparatively small open economic system the UK would even be hit by decrease ranges of worldwide commerce and enterprise funding.
With the UK authorities on the again foot on the economic system earlier than subsequent week’s spring assertion, the chancellor, Rachel Reeves, mentioned the OECD report confirmed the world was altering.
“Elevated international headwinds akin to commerce uncertainty are being felt throughout the board. A altering world means Britain should change too, and we’re delivering a brand new period of stability, safety and renewal, to guard working individuals and hold our nation secure,” Reeves mentioned.
“This implies we are able to higher reply to international uncertainty, with the UK forecast to be Europe’s fastest-growing G7 economic system over the approaching years – second solely to the US.”
Within the UK, the OECD held its predictions for inflation at 2.7% this 12 months and a pair of.3% in 2026.
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