The Organisation for Economic Co-operation and Development (OECD) in its Economic Outlook report released on Monday revealed that global gross domestic product (GDP) growth would moderate from 3.2 percent in 2024 to 3.1 percent in 2025
This was as higher trade barriers in several G20 economies and increased policy uncertainty weigh on investment and household spending.
This was disclosed in the OECD interim Report March 2025, with the theme, ‘Steering Through Uncertainty.’
It noted that even though the global economy remained resilient in 2024, some signs of weakness were appearing against a backdrop of slower growth, lingering inflation, and an uncertain policy environment.
“The global economy remained resilient in 2024, expanding at a solid annualised pace of 3.2 percent through the second half of the year. However, recent activity indicators point to a softening of global growth prospects.
“Business and consumer sentiment have weakened in some countries. Inflationary pressures continue to linger in many economies. At the same time, policy uncertainty has been high and significant risks remain.
“Further fragmentation of the global economy is a key concern. Higher-than-expected inflation would prompt more restrictive monetary policy and could give rise to disruptive repricing in financial markets. “On the upside, agreements that lower tariffs from current levels could result in stronger growth,” the report highlighted.
According to the report, annual real GDP growth in the United States was projected to slow from its very strong recent pace, to 2.2 percent in 2025 and 1.6 percent in 2026, while Euro area real GDP growth is projected to be 1.0 percent in 2025 and 1.2 percent in 2026, as heightened uncertainty keeps growth subdued, as growth in China is projected to slow from 4.8 percent this year to 4.4 percent in 2026.
According to the report, inflation continues to linger in many countries with headline inflation recently turning up again in an increasing share of economies.
“Inflationary pressures persist in many economies, with headline inflation recently turning up again in an increasing share of economies.
“Services price inflation has stayed elevated, with a median rate of 3.6 percent across OECD economies. Over 2025-26 inflation is projected to be higher than previously expected, although still moderating as economic growth softens.
“Headline inflation is projected to fall from 3.8 percent in 2025 to 3.2 percent in 2026 in the G20 economies. Underlying inflation is now projected to remain above central bank targets in many countries in 2026,” the report stated.
The report warned that further trade fragmentation could harm global growth prospects as high level of geopolitical and policy uncertainty at present brings with it substantial risks to the baseline projections.
“An illustrative exercise, where bilateral tariffs are raised further on all non-commodity imports into the United States with corresponding increases in tariffs applied to non-commodity imports from the United States in all other countries, shows that global output could fall by around 0.3 percent by the third year, and global inflation could rise by 0.4 percentage points per annum on average over the first three years.
“The impact of these shocks would be magnified if policy uncertainty were to increase further or there was widespread risk repricing in financial markets. These would add to the downward pressures on corporate and household spending around the world,” the report noted.
On what policymakers could do, the report urged central banks to remain vigilant, while stressing that fiscal actions are needed to ensure debt sustainability
It added, “Central banks should remain vigilant given heightened uncertainty and the potential for higher trade costs to push up price and wage pressures.
“Provided inflation expectations remain well anchored, and trade tensions do not intensify further, policy rate reductions should continue in economies in which underlying inflation is projected to moderate and aggregate demand growth is subdued.
“Decisive fiscal actions are needed to ensure debt sustainability, preserve room for governments to react to future shocks and generate resources to meet large impending spending pressures.
“Stronger efforts to contain and reallocate spending and enhance revenues, set within credible medium-term adjustment paths tailored to country-specific circumstances, are key to ensuring that debt burdens stabilise.”
Oluchi Chibuzor
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