OECD: Higher and broader increases in trade barriers would hit growth around the world, add to inflation
Higher and broader increases in trade barriers would hit growth around the world and add to inflation, the Organisation for Economic Cooperation and Development (OECD) said in its March 2025 interim report, released on March 17.
The report comes against the background of the trade wars unleashed by US President Trump.
Global output growth remained resilient in 2024, with robust expansions in the United States and several large emerging-market economies, including China, the OECD said.
Recent activity indicators have begun to point to a softening of global growth prospects. Business and consumer sentiment have weakened in some countries, and indicators of economic policy uncertainty have risen markedly around the world, it said.
“Significant changes have occurred in trade policies that if sustained would hit global growth and raise inflation,” the organisation said.
It said that inflationary pressures continue to linger in many economies. Services inflation is still elevated, with labour markets tight, and goods inflation is picking up from very low levels.
Global GDP growth is projected to moderate from 3.2 per cent in 2024, to 3.1 per cent in 2025 and 3.0 per cent in 2026, with higher trade barriers in several G20 economies and increased geopolitical and policy uncertainty weighing on investment and household spending.
Annual GDP growth in the United States is projected to slow from its strong recent pace, to be 2.2 per cent in 2025 and 1.6 per cent in 2026.
Euro area GDP growth is projected to be 1.0 per cent in 2025 and 1.2 per cent in 2026, as heightened uncertainty keeps growth subdued. Growth in China is projected to slow from 4.8 per cent this year to 4.4 per cent in 2026.
“Inflation is projected to be higher than previously expected, although still moderating as economic growth softens,” the OECD said.
Headline inflation is projected to fall from 3.8 per cent in 2025 to 3.2 per cent in 2026 in the G20 economies. Core inflation is now projected to remain above central bank targets in many countries in 2026, including the US.
“These projections are based on an assumption that bilateral tariffs between Canada and the United States and between Mexico and the United States are raised by an additional 25 percentage points on almost all merchandise imports from April,” the OECD said.
“Activity would be stronger and inflation lower in all three economies if these tariff increases were lower or confined to a smaller range of goods, but global growth would still be weaker than previously expected.”
Significant risks remain, the report said.
“Further fragmentation of the global economy is a key concern.
“Higher and broader increases in trade barriers would hit growth around the world and add to inflation,” it said.
“Higher-than-expected inflation would prompt more restrictive monetary policy and could give rise to disruptive repricing in financial markets.”
The OECD said that on the upside, “a more stable policy environment would reduce uncertainty, and agreements that lower tariffs from current levels and more ambitious structural policy reforms could strengthen growth”.
Higher government spending on defence could also support growth in the near-term, but potentially add to longer-term fiscal pressures, the organisation said.
“Central banks should remain vigilant given heightened uncertainty and the potential for higher trade costs to push up wage and price 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 or remain subdued.”
The OECD said that fiscal discipline is needed to ensure debt sustainability, maintain the ability for governments to react to future shocks and accommodate current and future spending pressures.
Countries need to find ways of addressing their concerns together within the global trading system, it said.
Living standards would benefit from coupling these measures with efforts to strengthen the resilience of supply chains, as well as regulatory reforms that promote dynamic product and labour markets and policies to encourage skill upgrades.
Faster diffusion of artificial intelligence technologies could also have significant productivity benefits, the OECD said.
“Governments can help by ensuring the availability of high-speed digital infrastructure, maintaining open and competitive markets and providing opportunities for workers to enhance their skills,” it said.
(Illustration: Jhon Casso)
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