The Organization for Economic Co-operation and Development (OECD) announced on Tuesday that global Gross Domestic Product (GDP) is demonstrating better-than-expected resilience, largely due to increased investment in artificial intelligence which is helping to offset the impact of rising U.S. tariff hikes. However, the OECD cautioned that this economic strength remains fragile, with the potential for renewed trade disputes or unfulfilled AI aspirations to pose future risks.
Global Growth Forecasts
In its latest Economic Outlook, the OECD projected that global growth would see a moderate decline from 3.2% in 2025 to 2.9% in 2026. These forecasts remain consistent with the organization's September estimates. Looking further ahead, the OECD anticipates a recovery in global growth to 3.1% by 2027.
Impact of Tariffs and Economic Drivers
The OECD forecasts a near-term decrease in economic activity as higher effective tariff rates progressively influence investment and trade, compounded by ongoing geopolitical and economic uncertainty. The organization suggested that growth is likely to strengthen again later in 2026. This rebound is expected as the impact of tariffs diminishes, financial conditions improve, and lower inflation stimulates consumption. Emerging Asian economies are identified as the primary engines of this anticipated global growth.
According to OECD projections, the U.S. economy is expected to slow from 2.8% in 2024 to 1.8% in 2025, followed by a further drop to 1.7% in 2026. The U.S. economy is then projected to reach 1.9% in 2027.
The OECD noted that investment in AI, fiscal support measures, and anticipated interest rate cuts by the Federal Reserve are acting as counterbalances to the economic drag caused by tariffs on imported goods, reduced immigration, and federal employment cutbacks.
The Paris-based organization revised its growth prediction for the euro zone in 2025 upwards to 1.3% from 1.2%. This upward revision is supported by robust labor markets and increased public investment in Germany. Growth in the euro zone is expected to slow to 1.2% in 2026, a decrease from the previously forecasted 1% due to financial constraints anticipated in France and Italy.
In China, growth is forecast to remain stable at 5% in 2025, an increase from the previous forecast of 4.9%. The organization expects China's growth to decelerate to 4.4% in 2026, a figure unchanged from the last outlook. This slowdown is attributed to the expiration of fiscal support measures and the implementation of new U.S. tariffs on products imported from China.
Japan's GDP is predicted to grow by 1.3% in 2025, up from 1.1%, driven by strong corporate earnings and investment. Following this, growth is expected to decline to 0.9% in 2026.
Global Inflation Risks
The OECD indicated that inflation is forecast to decrease across most G20 economies as economic growth moderates and labor market pressures ease. While headline inflation remains persistent in some regions, the OECD stated it is expected to return to target levels by 2027 in nearly all major economies.
Global trade growth is predicted to decline from 4.2% in 2025 to 2.3% in 2026, as the full impact of tariffs weighs on investment and consumption.
The OECD Economic Outlook revealed that most major economies are anticipated to meet their inflation targets set by central banks by mid-2027. In the U.S., inflation is expected to peak in mid-2026, following a period where tariffs are passed on to consumers, before subsequently declining.
In China and certain emerging economies, inflation is projected to rise gradually as excess production capacity is absorbed.
The OECD emphasized the necessity for countries to find cooperative methods for engaging within the global trading system. Furthermore, the organization stressed the importance of international collaboration to enhance trade policy predictability and secure lasting resolutions to trade disputes.
The OECD anticipates that most major central banks will maintain or reduce borrowing costs over the coming year, supported by receding inflationary pressures. The Federal Reserve is expected to implement modest rate cuts by the end of 2026, provided there are no unexpected inflationary surges related to tariffs.
The international economic organization advised that central banks should remain vigilant to shifts in inflation dynamics. The financial watchdog further contended that consistent reductions in policy rates can proceed if underlying inflation continues its downward trend and inflation expectations remain anchored.
The OECD issued a warning that countries experiencing tariff-driven price pressures may need to adopt a more cautious approach, adjusting the pace of interest-rate cuts to prevent the resurgence of inflation.