OECD Forecasts Sharper U.S. Slowdown and Rising Inflation Amid Tariff Surg

Overview

In its latest economic outlook, the OECD has signaled a sharp slowdown in U.S. economic growth, attributing the decline largely to the impact of tariffs imposed by the Trump administration. U.S. GDP is now expected to decelerate to 1.6% in 2025 and further drop to 1.5% in 2026, a steep decline from the 2.8% growth recorded last year. The report also forecasts a significant spike in inflation, driven by rising costs from increased tariffs.

For additional context, you can read CBS News’ full report here.

What’s Changing?

The OECD report highlights several key changes in the U.S. economic landscape:

• Tariff Hikes: The effective tariff rate has surged to 15.4% from 2% last year—the highest since 1938. These tariffs, imposed on imports from nearly every foreign nation, are passed on to consumers, leading to higher prices.

• Policy Uncertainty: The Trump administration’s trade policies have contributed to a climate of economic and trade policy uncertainty, diminishing both business and consumer confidence.

• Inflation Pressures: With tariffs inflating costs for U.S. importers like Walmart, the OECD expects inflation to spike in mid-2025, potentially reaching 3.9% by the end of the year, up from a recent Consumer Price Index increase of 2.3% in April.

Implications for the U.S. Economy

The downgrades in the GDP growth forecast are a stark reminder of how trade barriers and policy uncertainty can stifle economic progress. The OECD chief economist, Álvaro Pereira, noted that the sharp rise in trade barriers is already having a negative effect on investment and consumption. This repricing of risk is a significant factor behind the forecasted growth slowdown and the anticipated rise in consumer prices.

For more insights on these challenges, check out Forbes’ analysis on Trump’s tariffs here.

Global Growth Outlook

The OECD's concern isn’t confined to the United States. Global economic growth is also expected to slow to 2.9% in both 2025 and 2026, down from 3.3% last year. This deceleration is being driven mainly by tariff-impacted economies in North America and China, with additional factors such as tighter financial conditions and weaker business sentiment playing significant roles.

You can read more on the global implications of these trends from UPI’s report here.

Key Risks and Takeaways

• Economic Downside Risks: The report warns of risks such as a more substantial economic slowdown, unexpected upward price pressures, and potential financial market corrections if trade friction persists.

• Potential Recovery Measures: The OECD suggests that lifting trade barriers could dramatically improve the growth outlook, stimulating both domestic and global economic activity.

• Investor Caution: With uncertainty high, businesses and investors are advised to prepare for a volatile economic environment, highlighting the importance of stable trade policies.

Final Thoughts

The OECD’s forecast presents a cautionary tale for the U.S. economy as it grapples with aggressive tariff policies and mounting policy uncertainty. With growth expected to taper significantly and inflation set to rise, both consumers and businesses face challenging times ahead. The key will be whether policymakers can ease these barriers to restore confidence and unlock the full potential of economic growth.

What are your thoughts on the OECD’s forecast? Do you believe that lifting tariffs could spur a quicker recovery? Join the conversation below by sharing your insights in the comments.

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