OECD cuts global growth estimate, warns on trade wars

The OECD today downgraded its forecast for economic growth, citing "significant changes" in trade policies by the US and subsequent countermeasures from other G20 countries.

In its Interim Economic Outlook, the OECD said it forecasts global gross domestic product (GDP) growth at 3.1pc this year, lower by 0.2 percentage points from its report in December and from actual global growth in 2024. It made a 0.3 percentage point cut to its 2026 projection, to 3.0pc.

The OECD said the tariff measures announced by the US on imports from China, Canada and Mexico, and the responses-in-kind by Ottawa and Beijing, will raise revenues for the governments imposing them, but this will be offset by the drag on global activity, incomes and regular tax revenues.

Assuming these measures all take effect, US economic growth will fall to 1.6pc in 2026 from 2.8pc in 2024, and Canadian growth will drop to 0.7pc from 1.5pc in that time (see table), the OECD said. It expects Mexico's economy to contract by 1.3pc this year and by 0.6pc next year, after 1.5pc growth in 2024.

"Growth would be stronger in all three economies in a lighter tariff scenario," it said.

The tariffs will raise trade costs, with the likelihood that these will be passed on to the consumer with implications for inflation rates, the OECD said. It warned that projected inflation paths are now higher than it previously thought.

"A resurgence of inflation or downside surprises to economic growth could trigger a rapid repricing in financial markets and a further rise in market volatility," it said. "Further fragmentation of the global economy is a key concern."

By Ben Winkley