The Organisation for Economic Co-operation and Development (OECD) has recently adjusted its global economic forecast, reducing the global growth projection for 2025 to 3.1%, down from the previous 3.2% estimated for 2024. This revision, outlined in the OECD’s Interim Economic Outlook, highlights several challenges that are expected to dampen economic momentum worldwide. Among the key contributors to this slowdown are rising trade barriers, geopolitical instability, and tightening financial conditions, all of which are creating a less favorable environment for global growth.
The impact of these global challenges varies across regions, but the OECD points to significant implications for major economies. For instance, the United States, which had been growing at a robust pace, is now projected to see a notable reduction in its growth rate. From 2.8% in 2024, U.S. GDP is expected to decelerate to just 2.2% in 2025. The slowdown is attributed to a combination of factors including the Fed’s ongoing interest rate hikes, which are designed to curb inflation but also have the side effect of increasing borrowing costs and cooling down consumer spending and investment.
The Euro Area, while facing similar challenges, is expected to maintain more subdued growth. The region’s GDP is projected to grow by just 1.0% in 2025, a modest increase compared to the previous year’s 1.2%. This slow growth can be traced back to several interrelated factors, such as energy price fluctuations, the impact of ongoing trade disruptions, and persistent inflationary pressures that continue to erode household purchasing power.
In addition to these developed economies, the outlook for emerging markets is also uncertain. While some regions may benefit from higher commodity prices and relatively lower inflation, many others are grappling with domestic issues, including inflation, debt crises, and political instability. The OECD warns that these factors, combined with the global headwinds of trade disruptions and financial tightening, could lead to divergent growth outcomes within the emerging market space.
The report also reflects concerns over global trade and the increasing barriers to free trade, as protectionist measures and tariffs continue to rise. The trade conflict between the U.S. and China remains a key area of uncertainty, as both countries continue to implement policies that disrupt global supply chains. The rise of economic nationalism and the reshoring of critical industries are likely to weigh on international trade volumes, leading to slower global growth than initially anticipated.
Furthermore, the geopolitical landscape remains volatile, with ongoing tensions in various parts of the world adding to the economic uncertainty. The OECD underscores the importance of international cooperation and multilateral efforts in addressing these challenges. Without effective global policy responses, the risks of a more pronounced economic slowdown in 2025 could increase.
In conclusion, the OECD’s revised economic outlook paints a picture of a challenging global environment in 2025. With the effects of trade barriers, geopolitical conflicts, and tighter financial conditions, the path to recovery for many economies looks to be slower and more uncertain. Policymakers across the world will need to navigate these obstacles carefully to avoid further setbacks and foster a more stable economic recovery.