Global Economic Outlook Weakens As Policy Uncertainty Weighs On Demand

(MENAFN- Caribbean News Global) PARIS, France – The global economy was more resilient than anticipated in the first half of 2025, but downside risks loom large as higher barriers to trade and geopolitical and policy uncertainty continue to weigh on activity in many economies.

The latest OECD Interim Economic Outlook projects global growth slowing from 3.3 percent in 2024 to 3.2 percent in 2025 and 2.9 percent in 2026, as early stockpiles of goods accumulated in anticipation of higher tariffs are drawn down, and as the implementation of tariffs and continuing policy uncertainty weigh on investment and trade.

GDP growth in the United States is projected to decline to 1.8 percent in 2025 and 1.5 percent in 2026. In the euro area, growth is expected to be 1.2 percent in 2025 and 1.0 percent in 2026. China's growth is projected to ease to 4.9 percent in 2025 and 4.4 percent in 2026.

Inflation is projected to decline in most G20 economies as economic growth moderates and labour market pressures ease. Headline inflation is projected to decline from 3.4 percent in 2025 to 2.9 percent in 2026, with core inflation in G20 advanced economies remaining broadly stable at 2.6 percent in 2025 and 2.5 percent in 2026.

“The global economy has remained resilient, but the full effects of higher tariffs and policy uncertainty have yet to be felt. Global economic growth is projected to slow, and significant risks remain, as well as concerns about fiscal sustainability and financial stability,” OECD secretary-general Mathias Cormann said.“To strengthen economic growth prospects, a key priority is to ensure a lasting resolution to trade tensions. We recommend that governments engage productively with one another to make international trading arrangements fairer and function better, in a way that preserves the economic benefits of open markets and rules-based global trade.”

Central banks should remain vigilant and react promptly to shifts in the balance of risks to price stability. Provided inflation expectations remain well-anchored, monetary policy rate reductions should continue in economies where inflation is projected to moderate towards the central bank's target.

Faced with rising budgetary pressures and elevated public debt, fiscal discipline is needed to enable governments to safeguard longer-term debt sustainability and maintain space to react to future shocks. Credible medium-term adjustment paths with stronger efforts to contain and reallocate spending and optimise revenues are key to ensuring debt burdens stabilise.

“Stronger structural reform efforts will be key to durably improve living standards and realise the potential gains from new technologies such as artificial intelligence,” OECD chief economist Álvaro Santos Pereira said.

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