The Organisation for Economic Co-operation and Development (OECD) on Monday upgraded its outlook for growth in Türkiye in 2025, while it cut global projections due to "trade barriers" and "uncertainty," warning that a broader trade war would sap growth further.
"We are navigating troubled waters," said the OECD's chief economist Alvaro Santos Pereira as he summed up the world's economic situation in the coming months, with inflation set to rise.
U.S. President Donald Trump's return to the White House is in part responsible for the coming turbulence, the Paris-based organization said in its latest interim outlook, with his protectionist policies sparking trade wars and driving up inflation.
Global growth is on course to slow slightly from 3.2% in 2024 to 3.1% in 2025 and 3% in 2026, the OECD said, cutting its projections from 3.3% for both this year and next in its previous economic outlook, issued in December.
That was due to "higher trade barriers in several G-20 economies and increased geopolitical and policy uncertainty weighing on investment and household spending."
The fresh projections were based primarily on weaker expected growth in the United States and the eurozone.
But the global picture masked divergences among major economies with resilience in some big emerging markets like China helping to make up for a marked slowdown in North America.
The proliferation of tariff hikes would weigh on global business investment and boost inflation, leaving central banks little choice but to keep interest rates higher for longer than previously expected, the OECD said.
U.S. economic growth is seen slowing this year to 2.2% before losing more steam next year to only 1.6%, the OECD said, cutting its forecasts from 2.4% and 2.1% previously.
Likewise, the eurozone growth projection is down from 1.3% three months ago to just 1%, but will continue its upward trajectory from 0.7% in 2024, reaching 1.2% in 2026.
In Türkiye, the OECD expects an economic growth of 3.1% in 2025, up from 2.6% it had forecast in December. However, it lowered its projection for 2026 to 3.9% from 4%.
It said it sees inflation ending this year at 31.4% from the current level of 39%, before easing to 17.3% in 2026. Both forecasts were higher compared to OECD's December estimates of 30.7% and 17.2%, respectively.
Stronger government support for Chinese growth would help offset the impact of higher tariffs in the world's second-biggest economy, the OECD said, forecasting 4.8% growth in 2025 – up from 4.7% – before slowing to 4.4% in 2026 – unchanged from the previous estimate.
The organization said it updated its forecasts assuming tariffs between the U.S. and its neighbors Canada and Mexico are raised an extra 25 percentage points on almost all goods imports from April.
The levies will drag down growth in Canada, Mexico and the United States while driving up inflation, it noted.
But the Mexican economy would be hit hardest by the tariff hikes, contracting 1.3% this year and a further 0.6% next year instead of growing 1.2% and 1.6% as previously expected.
Canada's growth rate would slow to 0.7% this year and next, well below the 2% previously forecast for both years.
The OECD said the global outlook would be much worse if Washington escalates the trade war by raising tariffs on all non-commodity imports and its trade partners do the same.
It estimated an increase in bilateral tariffs permanently by 10 percentage points would shave around 0.3 percentage points off global growth by the second and third years of the shock, while global inflation would be on average 0.4 percentage points higher over the first three years.
In the case of a generalized trade shock, not only will U.S. households pay a high direct price, but the likely economic slowdown will cost the United States more than the extra income the tariffs are supposed to generate, it said.
In such a scenario, the U.S. economy would suffer a significant hit, with growth 0.7 percentage points lower than what it otherwise would have been by the third year. The direct cost to U.S. households could be as much as $1,600 each.
The financial cost from the economic drag from tariffs would also offset any extra income they generate for the public coffers, which means they would be insufficient to pay for lowering other taxes as the U.S. administration has planned.
The OECD also took into account new tariffs on trade between the U.S. and China and those imposed on steel and aluminum, but not any threatened reciprocal levies nor any concerning the European Union.
"European economies will experience fewer direct economic effects from the tariff measures" than Canada and Mexico, the OECD said, "but heightened geopolitical and policy uncertainty is still likely to restrain growth".
For the second report in succession, the OECD has lowered its growth expectations for both France and Germany – down to 0.8% and 0.4% respectively.
Britain's forecast is also down to just 1.4%, with only Spain amongst major European nations bucking the trend and set to maintain its recent strong performance with 2.6% growth predicted in 2025.
The organization said that "significant risks remain" as further tit-for-tat tariffs between major global economies "would hit growth around the world and add to inflation."
"Core inflation is now projected to remain above central bank targets in many countries in 2026, including the United States," added the OECD, which advises industrialized nations on policy matters, issues regular forecasts on the global economy and identifies factors that could impact growth.
U.S. inflation is now expected to accelerate to 2.8% in 2025, up 0.7 percentage points from the previous projection and above the 2.5% figure from 2024.
However, one element that could ease the short-term pressure on the global economy is European nations' vows to boost defense spending in the face of the threat from Vladimir Putin's Russia and reluctance from Trump to continue Washington's bank-rolling of NATO.
An increase in defense spending could "support growth in the near-term, but potentially add to longer-term fiscal pressures," the OECD said.
