The Organization for Economic Co-operation and Development (OECD) has released the Economic Outlook Interim Report: Steering through Uncertainty on 17 March 2025.

According to the report, the global economy has been resilient in 2024, but some signs of weakness are appearing against a backdrop of slower growth, lingering inflation, and an uncertain policy environment. The Outlook projects global growth slowing to 3.1% in 2025 and 3.0% in 2026, with important differences across countries and regions.

OECD Economic Outlook, Interim Report March 2025

Steering through uncertainty

Introduction

The global economy remained resilient in 2024, expanding at a solid annualised pace of 3.2% 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.

Global growth is projected to moderate

Global GDP growth is expected to moderate from 3.2% in 2024 to 3.1% in 2025 and 3.0% in 2026, with higher trade barriers in several G20 economies and increased policy uncertainty weighing on investment and household spending. Annual real GDP growth in the United States is projected to slow from its very strong recent pace to 2.2% in 2025 and 1.6% in 2026. Euro area real GDP growth is projected to be 1.0% in 2025 and 1.2% in 2026, as heightened uncertainty keeps growth subdued. Growth in China is projected to slow from 4.8% this year to 4.4% in 2026.

Inflation continues to linger in many countries

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% 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% in 2025 to 3.2% in 2026 in the G20 economies. Underlying inflation is now projected to remain above central bank targets in many countries in 2026.

Further trade fragmentation would harm global growth prospects

The high level of geopolitical and policy uncertainty at present brings with it substantial risks to the baseline projections. One possible risk is the escalation of trade restrictive measures. 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% 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.

What can policymakers do?

Monetary policy should remain vigilant

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.

Fiscal actions are needed to ensure debt sustainability

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.

Ambitious structural policy reforms are needed to improve the foundations for growth

Ongoing international cooperation can ensure that recent adjustments to trade policies do not spark a significant ratcheting up of retaliatory trade barriers between countries. Yet, potential output has generally weakened across both advanced and emerging economies since the global financial crisis. In addition, rising protectionism, geopolitical uncertainty and weak growth prospects all serve to reinforce the need for ambitious structural policy reforms that ensure healthy domestic markets. These include regulatory reforms that encourage competitive market dynamics, such as by eliminating excessive regulatory burdens on firm entry. Reforms to enhance education and skills development, and reduce constraints in labour markets that impede investment and labour mobility, are also essential to improve productivity, enhance the spread of new technologies and boost labour force participation.