Donald Trump's tariffs will hurt global growth, OECD warns

The OECD downgraded its global growth forecast for this year to 2.9% from 3.1%, citing the impact of US tariffs and heightened trade tensions, with chief economist Alvaro Pereira stating that "weakened economic prospects will be felt around the world". The report also lowered the US growth outlook to 1.6% and cautioned about rising inflation, while trimming the UK's growth forecast to 1.3% and suggesting the country address its substantial government debt and consider raising tax revenues. Despite Trump's claims of a booming economy due to tariffs, recent data showed a contraction in the US economy, adding to the uncertainty.

Analysis

The Organization for Economic Co-operation and Development (OECD) has revised its global economic growth forecast downward for the current year to 2.9% from a previous 3.1%, primarily attributing this slowdown to the implementation of US tariffs under the Trump administration and the consequent rise in trade barriers. This tariff-induced uncertainty is expected to result in "weakened economic prospects" globally, with the OECD's chief economist, Alvaro Pereira, noting a downgrade for "almost everybody" leading to less growth and job creation. The US economy itself is significantly impacted, with its growth forecast slashed to 1.6% from 2.2% for this year, and further slowing predicted for 2026; this contrasts sharply with President Trump's claims of a booming economy due to tariffs and follows recent official data indicating a 0.2% annualized contraction in the US economy in the first three months of this year, its first since 2022. The OECD also highlighted the risk of rising inflation in the US. For the UK, growth expectations have been trimmed to 1.3% for this year (down from 1.4%) and 1.0% for 2026 (down from 1.2%), with the slowdown attributed to heightened trade tensions and elevated uncertainty, compounded by domestic challenges such as substantial government debt interest payments and a "very thin" financial buffer. Despite better-than-expected UK economic growth of 0.7% between January and March, the OECD cautioned that "momentum is weakening" due to "deteriorating" business sentiment and suggested Chancellor Rachel Reeves consider raising tax revenues, including by closing loopholes and re-evaluating council tax bands, to strengthen public finances ahead of the upcoming Spending Review.

Key Decisions for Investors

• Investors should anticipate heightened global economic volatility and potentially adopt a more defensive posture given the OECD's downgraded growth forecasts driven by US tariff policies and widespread trade tensions.
• Consider re-evaluating portfolio allocations with a cautious view on sectors highly exposed to international trade and economies specifically flagged for slowdowns, such as the US and UK, while monitoring for opportunities in regions or sectors less impacted by current trade disputes.
• Closely monitor US inflation data due to the OECD's specific warning, and track UK fiscal policy announcements, particularly regarding the Spending Review and potential tax adjustments, for their implications on market stability and sovereign risk.