• Downgraded Global Growth Projections: The OECD has revised its global growth forecasts downward, predicting a decline from 3.2% in 2024 to 3.1% in 2025 and 3.0% in 2026
• Impact of Trade Restrictions: 10% tariff hike on non-commodity imports into the U.S. could lead to a 0.3% decline in global output and a 0.4 percentage point rise in inflation annually over three years
• Need for Coordinated Policy Responses: Rising protectionism and geopolitical uncertainties are fragmenting global trade

Harare- The global economy stands at a crossroads, with trade tensions casting a long shadow over its prospects.

The Organisation for Economic Co-operation and Development (OECD) released its latest economic outlook on the 17^th of March 2025, revising its global growth projections downward for 2025 and 2026.

This revision comes as a response to the escalating trade tensions between major economies, particularly the United States, China, and the European Union.

The OECD's economic outlook reflects trade tensions particularly tariff disputes as a pivotal factor influencing the uncertainty in the global economic climate.

With downgraded growth forecasts and persistent inflationary pressures, the report highlights the far-reaching consequences of escalating trade barriers.

The 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.

The growth projections vary by region, with the United States expected to experience a deceleration in annual real GDP growth from its robust recent performance to 2.2% in 2025 and 1.6% in 2026.

The Euro Area's growth remains subdued, projected at 1.0% in 2025 and 1.2% in 2026, constrained by ongoing uncertainties, while China's economic expansion is forecasted to ease from 4.8% in 2024 to 4.4% in 2026.

Inflation continues to pose challenges across many economies, with headline inflation recently rising and services price inflation holding steady at a median rate of 3.6% across OECD countries.

For the G20, headline inflation is projected to decline from 3.8% in 2025 to 3.2% in 2026, though it remains higher than earlier forecasts. Underlying inflation is expected to persist above central bank targets in numerous countries through 2026, driven partly by trade-related cost pressures.

The OECD identifies the escalation of trade restrictions, particularly tariffs, as a major risk to global economic stability. A simulated scenario involving a 10% tariff increase on all non-commodity imports into the United States, met with equivalent retaliatory tariffs on U.S. exports by other nations, reveals significant economic consequences.

By the third year, global output could decline by 0.3% relative to the baseline scenario, with inflation rising by 0.4 percentage points per year on average over the first three years.

The regional impacts would be disproportionate, with the United States facing a GDP decline of 0.7% and an inflation increase of 0.7 percentage points annually over the first three years.

Canada and Mexico would experience GDP reductions of 0.6% and 1.3%, respectively. This simulation reveals that initiating or escalating tariffs does not shield an economy from harm; rather, it amplifies the adverse effects across interconnected markets.

Trade policies are increasingly entangled with geopolitical strategies, extending beyond mere economic objectives. Tariffs serve as instruments in broader political maneuvers, reflecting tensions between nations.

The OECD's analysis focuses on the economic fallout rather than the underlying diplomatic motivations, noting that such measures regardless of intent consistently undermine global growth and stability.

Rising protectionism and geopolitical uncertainty are fragmenting global trade networks, disrupting the once-integrated supply chains that underpinned economic growth. The OECD report points to a weakened potential output across advanced and emerging economies since the global financial crisis, a trend exacerbated by trade barriers.

These fragmentations increase costs for businesses and consumers, potentially leading to long-term inefficiencies and reduced global economic resilience.

To mitigate these challenges, the OECD recommends several strategies. Central banks are urged to monitor inflation closely and adjust policy rates judiciously. Governments need to implement decisive fiscal measures to ensure debt sustainability, including reallocating spending, enhancing revenue streams, and establishing credible medium-term fiscal plans tailored to national contexts.

Ambitious structural reforms are critical to bolster growth foundations. These encompass regulatory reforms to foster competitive markets, enhancing workforce capabilities to improve productivity and technology adoption, and reducing constraints in labour markets to boost participation and mobility.

Therefore, the OECD's downgraded growth projections for 2025 and 2026 reflect a global economy under strain, with trade restrictions emerging as a central concern.

The data illustrate that a tariff war yields no victors, with significant GDP declines and inflationary pressures affecting even the instigating nations, such as the United States. Geopolitical dynamics and trade fragmentations further complicate the outlook, reflecting  the need for coordinated policy responses.

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