The global economic landscape has taken a significant hit as the Organisation for Economic Cooperation and Development (OECD) lowered its growth forecasts amid rising trade tensions and tariff barriers, particularly those instigated by the United States under President Donald Trump. On June 3, 2025, the Paris-based economic policy group revised its outlook, projecting the global economy to slow from 3.3% growth in 2024 to a modest 2.9% in both 2025 and 2026, down from earlier estimates of 3.1% and 3.0% respectively.
This downward revision reflects the mounting toll of the Trump administration's aggressive tariff policies, which have rattled financial markets and stoked uncertainty worldwide. The OECD specifically cited "substantial increases" in trade barriers, tighter financial conditions, weakened business and consumer confidence, and heightened policy uncertainty as key factors dampening growth prospects. The organization warned that if these trends persist, they will have "marked adverse effects on growth" globally.
Highlighting the gravity of the situation, OECD chief economist Alvaro Pereira emphasized the need for cooperative dialogue, stating, "For everyone, including the United States, the best option is that countries sit down and get an agreement. Avoiding further trade fragmentation is absolutely key in the next few months and years." This call for diplomacy comes as the OECD convened a ministerial meeting in Paris on June 3 and 4, 2025, where US and EU trade negotiators were expected to hold talks on the sidelines amid threats from Trump to impose 50-percent tariffs on European imports.
Trump's tariff blitz began in earnest in April 2025, when he imposed a baseline 10 percent tariff on imports from around the world. Although higher tariffs on dozens of countries were temporarily paused until July to allow negotiations, plans to raise tariffs on steel and aluminum imports to 50 percent were set to take effect on June 4. These measures have dramatically increased the effective tariff rate on US merchandise imports from 2 percent in 2024 to 15.4 percent—the highest level since 1938.
The impact on the US economy has been severe. The OECD slashed its growth forecast for the United States from 2.2 percent to just 1.6 percent in 2025, with a further slowdown to 1.5 percent expected in 2026. This slowdown is attributed not only to the tariffs and retaliatory measures by trading partners but also to high economic policy uncertainty, a significant slowdown in net immigration, and a sizeable reduction in the federal workforce. Inflationary pressures are also mounting, with US inflation projected to accelerate to just under 4 percent by the end of 2025—double the Federal Reserve's target.
Official data corroborates these concerns, showing that the US economy contracted at an annual rate of 0.2 percent in the first quarter of 2025, marking its first contraction since 2022. Despite President Trump's social media claims that "Because of Tariffs, our Economy is BOOMING!", the economic indicators tell a more sobering story.
The OECD's bleak outlook extends beyond the US. South Korea experienced the second-largest downgrade among major economies, with its 2025 growth forecast cut by 0.5 percentage points to 1 percent. This marks the second downward revision in less than six months, following a cut from 2.1 percent to 1.5 percent in March 2025. The OECD noted that South Korea's economy has been weighed down by the fallout from the short-lived imposition of martial law in December 2024, which negatively impacted GDP in the first quarter of 2025. Additionally, uncertainty surrounding US trade policies and global trade tensions are expected to hamper South Korea's exports and investment. Although fiscal stimulus is anticipated to provide short-term relief, the OECD urged the South Korean government to establish a more sustainable fiscal framework to restore long-term financial health. Earlier in June, South Korea's National Assembly passed a supplementary budget worth 13.8 trillion won (approximately US$10 billion), and further fiscal expansion is anticipated amid pledges from leading presidential candidates for expansionary policies.
Japan also faced a downgrade, with its growth forecast lowered from 1.1 percent to 0.7 percent for 2025. Meanwhile, the eurozone's outlook remained stable, with a steady 1 percent growth forecast.
The United Kingdom, too, is feeling the pinch. The OECD cut its UK growth forecast for 2025 to 1.3 percent from 1.4 percent, citing the effects of US tariff barriers and high interest payments on government debt. The UK’s economic momentum, which had strengthened to 0.7 percent growth between January and March 2025, is now seen as weakening due to deteriorating business sentiment. The OECD highlighted the UK's "very thin" buffer in public finances and called on Chancellor Rachel Reeves to boost tax revenues and cut spending. Reeves is expected to unveil her Spending Review in the week of June 9, 2025, where she faces tough decisions on departmental budgets amidst commitments to defense and healthcare spending. In March 2025, Reeves announced £14 billion in measures, including £4.8 billion in welfare cuts, aimed at restoring fiscal headroom.
The OECD recommended a "balanced approach" for the UK, combining targeted spending cuts with tax increases, including closing tax loopholes and re-evaluating council tax bands based on updated property values. Currently, council tax in England is calculated on property prices as of April 1991, and in Wales as of April 2003, an outdated system the OECD suggests revising.
Overall, the OECD paints a picture of a global economy grappling with unprecedented trade tensions and economic uncertainty. Pereira warned that "weakened economic prospects will be felt around the world, with almost no exception," and cautioned that additional trade barriers could further dampen growth and fuel inflation. As trade policies continue to evolve, the hope remains that international cooperation will prevail to avoid further fragmentation and economic damage.
