The US is heading for a sharp economic downturn, influential global organization warns

Donald Trump’s aggressive trade policies has sent the global economy into a downturn, the OECD warned in a major report on Tuesday. 

The US economy will be among the hardest hit with growth slowing to 1.6 percent this year down from 2.8 percent in 2024, according to the group’s new forecasts. 

The Paris-based organization also predicted that Trump’s tariffs will hit the global economy harder than expected, slashing its growth forecast for the year down to 2.9 percent compared to 3.3 percent last year. 

The group, made up of the 38 wealthy nations, said that protectionism is also driving up inflation

The OECD said inflation will tick up in the US this year, likely preventing the Fed from cutting rates until 2026. 

If consumer-price expectations become de-anchored the Fed could even be forced to raise rates again, the report warned.  

‘Weakened economic prospects will be felt around the world, with almost no exception,’ OECD chief economist Alvaro Pereira said in the report.

‘Lower growth and less trade will hit incomes and slow job growth.’

Trump's tariff policies are hurting the US and global economy, according to the OECD

Trump’s tariff policies are hurting the US and global economy, according to the OECD

The situation could also deteriorate further if countries begin to retaliate against the US with their own steep tariffs, the group warned. 

Uncertainty from the rapidly changing policies is also hitting consumer confidence and holding back investment, according to the report. 

The OECD has called on governments to ease trade tensions and work to eliminate uncertainty. 

‘Agreements to ease trade tensions and lower tariffs and other trade barriers will be instrumental to revive growth and investment and avoid rising prices,’ the OECD said. 

‘This is by far the most important policy priority.’  

The report comes as its members, including US trade representative Jamieson Greer, prepare to meet in Paris for their annual meeting. 

The OECD also criticized other key Trump policies including his vast reductions in the federal workforce and curbs on immigration, both of which are also dragging on the economy. 

The report also warned that the US budget deficit will expand further as weaker economic activity will override the gains made by spending cuts and revenue from tariffs. 

The Fed may not cut rates again until 2026 as prices tick up in the US, the report warned

The Fed may not cut rates again until 2026 as prices tick up in the US, the report warned 

‘The main headwinds are lower export growth as a result of retaliatory measures from trading partners, the impact of high policy uncertainty, and a marked slowdown in net immigration,’ OECD Secretary General Mathias Cormann said on Tuesday.

The report also warned that economies around the world are facing an unholy alliance of pressures, from ageing populations to calls for more spending on defence and climate.  

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