OECD Says U.S. GDP Growth to Slow Next Year as Tariffs, Lower Immigration Weigh on Economy

The OECD has raised its U.S. GDP growth forecast for 2025 to 1.8% from 1.6%, primarily driven by robust AI-related investments. Conversely, the organization projects a significant slowdown in U.S. growth for 2024 to 1.5%, a notable decrease from the 2.8% previously observed for the year, attributing this deceleration to the adverse effects of higher tariffs and reduced net immigration. Globally, the OECD also revised its 2023 growth forecast upwards to 3.2% but maintained its 2024 projection at 2.9%.

Analysis

The Organisation for Economic Co-operation and Development (OECD) presents a bifurcated outlook for the U.S. economy, upgrading its 2025 real GDP growth forecast to 1.8% from 1.6% while simultaneously projecting a significant slowdown. The upward revision for 2025 is attributed specifically to strong investment related to the AI boom. However, this is offset by a stark warning of deceleration, with growth expected to fall from 2.8% in 2024 to just 1.5% in the subsequent year. The primary drivers for this slowdown are identified as significant macroeconomic headwinds, including higher tariff rates and a drop in net immigration. The OECD quantifies the trade friction by noting the effective U.S. tariff rate reached approximately 19.5% in August, its highest level since 1933. This policy-driven drag is compounded by a noted softening in U.S. labor markets. Globally, the OECD raised its 2025 growth forecast to 3.2%, citing unexpected resilience in emerging markets that front-loaded exports to the U.S., but maintained a more subdued 2.9% growth forecast for the following year, suggesting a broad-based moderation.

Key Decisions for Investors

• Investors should consider overweighting exposure to sectors directly benefiting from AI-related capital expenditure, as this theme is identified as a primary driver of near-term growth, while remaining cautious on sectors sensitive to broad economic activity and trade policy.
• Monitor U.S. trade and immigration policy closely, as the OECD flags the effective tariff rate and lower net immigration as the key factors expected to more than offset technology investment and drive the projected growth slowdown.
• Given the projected sharp deceleration in U.S. GDP from 2.8% to 1.5% and a softening labor market, it may be prudent to adopt a more defensive posture on broad U.S. equity indices for the medium term.
• Evaluate international allocations, particularly towards emerging markets which have shown near-term resilience, but be mindful that the stable global growth forecast of 2.9% for the subsequent year suggests this outperformance may be temporary.