The global economy will expand faster than previously expected this year despite the shock of U.S. President Donald Trump’s sweeping tariffs, the Organisation for Economic Co-operation and Development (OECD) said on Tuesday. However, the Paris-based body cautioned that the full effects of the measures have yet to materialise and warned of significant risks ahead.
In June, the OECD lowered its 2025 growth forecast to 2.9%, citing fears that Trump’s tariff regime would stifle trade and investment. But in its updated outlook, the organisation revised its projection up to 3.2%, saying the global economy had “proved more resilient than anticipated” in the first half of the year.
The OECD credited the rebound in part to “front-loading,” with companies rushing to import goods ahead of tariff deadlines, as well as strong artificial intelligence-related investment in the U.S. and increased government spending in China. Even so, the projection represents only a slight improvement on 2024’s 3.3% growth rate.
“The full effects of tariff increases have yet to be felt,” the OECD said. While some companies have absorbed higher costs through reduced profit margins, the organisation warned that the impact is becoming more visible in consumer prices, spending patterns, and labour markets.
The report forecast that global growth will slow again to 2.9% in 2026 as front-loading fades and elevated tariffs, alongside persistent policy uncertainty, weigh on trade and investment.
Trump introduced a 10% baseline tariff on all imports in April, later imposing higher duties on dozens of countries. While the U.S. has reached deals with Britain, Japan and the European Union, negotiations with China remain unresolved. The OECD estimated the overall effective U.S. tariff rate had risen to 19.5% by August — the highest level since 1933.
“Significant risks to the economic outlook remain,” the report cautioned, pointing to the possibility of further tariff hikes, rising food and energy prices driven by geopolitical tensions, and high public debt levels. It also warned that businesses may increasingly pass tariff costs on to consumers, fuelling inflation.
On the upside, the OECD noted that reduced trade restrictions or faster adoption of artificial intelligence technologies could lift global growth prospects.
The organisation raised its 2025 U.S. growth outlook from 1.6% to 1.8% but said expansion will slow as higher tariffs take fuller effect and political uncertainty persists. Cuts to the federal workforce and a sharp drop in immigration are also expected to soften growth.
OECD chief economist Alvaro Pereira, who will soon step down to lead Portugal’s central bank, told AFP that high-skilled migration remains critical for the U.S. economy, particularly as the tech sector faces labour shortages. He warned that Trump’s new $100,000 fee on H-1B visas, widely used by technology firms to hire foreign talent, could undermine growth.
“We do think that continuing to attract high-skilled individuals is a key strength of the U.S. economy,” Pereira said. “This will only become more important with the AI boom.”
The OECD also lifted forecasts for other major economies, projecting growth of 4.9% in China, 1.2% in the euro zone and 1.1% in Japan. But it flagged recent declines in industrial production in Brazil, Germany and South Korea, and softer consumer demand in the U.S., China and Europe.
