OECD warns U.S. economy slows down amid rising tariffs

In the United States, the Organisation for Economic Co-operation and Development (OECD) released a report detailing a significant decrease in the economic growth forecast caused by higher tariffs. The updated projections indicated that U.S. economic growth is expected to slow to 1.6% in 2025 and further to 1.5% in 2026. This revised outlook represents a stark contrast to the 2.8% growth in gross domestic product (GDP) recorded during the previous year. The OECD linked the slower growth to a substantial increase in effective tariff rates on imports and retaliatory measures from trading partners. Additionally, issues such as high economic policy uncertainty, a reduction in net immigration, and a decline in the federal workforce compounded the economic slowdown. Furthermore, the report highlighted that annual inflation is projected to rise to 3.9% by the end of 2025 due to the higher import prices linked to tariff increases. The OECD warned that these rising costs could adversely impact consumers, as they would face increased prices for imported goods, negatively affecting real incomes. The OECD emphasized that the tariff increases not only disrupt established value chains but also hinder investment by creating an uncertain economic landscape for businesses. The economic policy changes proposed by the current administration include continued enforcement of tariffs that were effective as of mid-May, which may result in a 30% effective tariff rate on imports from China and an average increase of about 10% on tariffs imposed on goods from other trading partners. Despite the intended goal of boosting domestic production, the consequences appear to be rising consumer prices that could, in turn, limit consumer spending and economic expansion. In light of these factors, the report concludes that the risks surrounding the growth projections are largely skewed to the downside. Potential scenarios include a more severe downturn in economic activity due to ongoing policy uncertainties, unexpected inflationary pressures resulting from tariff increases, and possible significant corrections in financial markets. Additionally, the OECD possesses concerns regarding the long-term implications of these changes, noting that the federal government must effectively manage rising budget deficits, expected to grow from 7.5% of GDP in 2024 to over 8% by 2026.