Trump Effect: Global Economy Faces Weakest Growth Since COVID On Tariff Chaos

President Donald Trump’s “Liberation Day” tariffs are set to dent U.S. economic growth this year, with GDP expected to slow down further in 2026, a new report from the Organization for Economic Cooperation and Development (OECD) showed.

The agency reduced its 2025 U.S. GDP forecast to 1.6% from the 2.2% expansion it had forecast in March. This compares to the 2.8% growth in 2024. It now sees GDP growth of 1.5% for 2026. 

Annual inflation is now forecast to rise to 3.9% by the end of 2025, prodded by higher import prices. However, slowing growth and higher unemployment will bring down inflation in 2026.

OECD said, “This reflects the substantial increase in the effective tariff rate on imports and retaliation from some trading partners, high economic policy uncertainty, a significant slowdown in net immigration, and a sizeable reduction in the federal workforce.”

The international body also reduced its 2025 global growth forecast to 2.9% from earlier projections of 3.1%, markedly slower than the 3.3% growth in 2024. The 2026 estimate was also reduced to 2.9%, marking the first time the figure will fall below 3% since 2020, when the COVID-19 pandemic ravaged the world.

The OECD blamed the “significant increase in trade barriers” and economic and trade policy uncertainty for its tempered opinion. 

U.S. President Trump set off a tremor in the global markets, announcing staggering reciprocal tariffs on all its trading partners. 

He has since then relented and put on hold the implementation of most tariffs, other than the baseline 10% rate. 

OECD said, “Weakened economic prospects will be felt around the world, with almost no exception. Lower growth and less trade will hit incomes and slow job growth.”

It also warned of inflationary pressure. With service price inflation remaining “stubbornly” sticky and goods price inflation increasing slightly in most countries, protectionism will aggravate pricing pressures further, it said.

OECD stated that, “Even though we are still forecasting that inflation will come down to central bank targets by 2026 in most countries, it will now take longer to reach those targets.” It also raised the possibility of inflation rising in countries most impacted by tariffs before easing. 

If the tariff situation worsens, the OECD expects further reductions in global growth and higher inflation, which will, in turn, dampen growth further. 

The agency called for efforts to avoid further trade fragmentation and trade barriers, vigilant monetary policy amid rising inflation and fiscal discipline.

The Invesco QQQ Trust (QQQ) ETF and the SPDR S&P 500 ETF (SPY) are up 2.5% and 1.4% this year, respectively.

For updates and corrections, email newsroom[at]stocktwits[dot]com.

Read Next: Elon Musk’s Neuralink, xAI Speed Up Fundraising Plans After Tesla CEO’s DOGE Exit