OECD Forecasts Global Economic Slowdown Amid Rising U.S. Tariffs

The Organisation for Economic Co-operation and Development (OECD) released its latest Interim Economic Outlook on September 23, 2025, projecting a gradual slowdown in global economic growth over the next two years. The report attributes this deceleration primarily to escalating U.S. tariffs and the resulting policy uncertainties.

According to the OECD, global GDP growth is expected to decline from 3.3% in 2024 to 3.2% in 2025 and further to 2.9% in 2026. The report highlights that the effective U.S. tariff rate on imports has surged to 19.5%, the highest level since 1933. As businesses deplete their inventories, the adverse effects of these tariffs are anticipated to become more pronounced, potentially leading to further slowdowns in trade and investment.

Regional Economic Forecasts

• United States: The U.S. economy is projected to experience a decline in growth from 2.8% in 2024 to 1.8% in 2025 and 1.5% in 2026. The OECD notes that the full impact of increased U.S. tariffs has yet to materialize, with many firms still operating off stockpiled inventories.

• Eurozone: Despite current resilience, with the HCOB flash composite PMI rising to 51.2 in September, the OECD predicts a decline in GDP growth to 1.0% in 2026 from 1.2% in 2025. The eurozone economy remains resilient despite growing concerns over political turmoil in France and U.S. tariffs.

• China: China is projected to grow by 4.9% in 2025 and 4.4% in 2026, supported by fiscal measures and investments in artificial intelligence.

Monetary Policy Considerations

Federal Reserve Governor Stephen Miran has argued that U.S. monetary policy is too restrictive due to a declining neutral interest rate. He advocates for more aggressive rate cuts to avoid unnecessary job losses and high unemployment, suggesting reducing the benchmark rate to 2.75%–3% by year's end.

Sectoral Impacts

• Pharmaceuticals: Swiss pharmaceutical firms, including Roche and Novartis, are meeting with Swiss government ministers to address concerns about potential U.S. tariffs on Swiss drug exports. Pharmaceuticals represent Switzerland's top export sector to the U.S., accounting for approximately $41.28 billion. A 39% tariff on pharmaceuticals could shrink Swiss economic output by over 1%.

• African Economies: The impending expiry of the African Growth and Opportunity Act (AGOA) at the end of September 2025 poses significant challenges. AGOA has been instrumental in providing duty-free access to the U.S. market for 32 African nations. Its expiration could reduce Africa's U.S. exports by a quarter and result in massive job losses, especially in sectors like textiles and apparel.

Financial Markets Response

Despite the looming tariff-related risks, Vanguard, a leading U.S. asset manager overseeing $11 trillion, remains optimistic about corporate bonds. Investment-grade credit spreads have narrowed to 74 basis points—their lowest level since 1998—due to strong investor demand and expectations of continued Federal Reserve interest rate cuts aimed at stimulating economic growth.

Social and Societal Implications

The combination of slowing economic growth, rising tariffs, and policy uncertainty has multifaceted societal implications:

• Employment: Potential job losses in export-dependent sectors, particularly in countries facing new tariffs or the expiration of trade agreements.

• Consumer Prices: Increased tariffs may lead to higher prices for imported goods, affecting consumer purchasing power.

• Investment Decisions: Businesses may delay or reduce investments due to uncertainty, impacting economic growth and innovation.

Background on the OECD

The Organisation for Economic Co-operation and Development (OECD) is an international organization comprising 38 member countries. It provides a platform for governments to collaborate on economic, social, and environmental challenges. The OECD's Economic Outlook reports are published twice a year, offering analysis and projections for member and selected non-member countries.

The OECD's latest report serves as a cautionary note, emphasizing the need for balanced policies to navigate the uncertain economic landscape shaped by rising tariffs and geopolitical tensions.