Global economy resilient, but fragile: OECD Economic Outlook

The report projects global growth slowing from 3.2 per cent in 2025 to 2.9 per cent in 2026, before picking up to 3.1 per cent in 2027.

US gross domestic product (GDP) growth is projected to decline from 2 per cent in 2025 to 1.7 per cent in 2026 and 1.9 per cent in 2027, as strong investment growth in high technology sectors is more than offset by higher tariff rates and a drop in net immigration.

In the euro area, GDP growth is expected to be 1.3 per cent in 2025, 1.2 per cent in 2026 and 1.4 per cent in 2027, with increased trade frictions and geopolitical uncertainty somewhat offset by easier credit conditions..

China’s growth is projected to ease from 5 per cent in 2025 to 4.4 per cent in 2026 and 4.3 per cent in 2027, as front-loading unwinds, higher tariffs take effect and fiscal support fades.

Annual headline inflation in the G20 economies is expected to moderate to 2.9 per cent and 2.5 per cent in 2026 and 2027 respectively, from 3.4 per cent this year. By mid-2027, inflation is projected to be back to target in most major economies.

Core inflation in the G20 advanced economies is estimated to remain broadly stable at 2.6 per cent in 2025 and 2.5 per cent in 2026.

“Given the fragilities in the global economy, countries must reinforce their efforts to engage in constructive dialogue that ensures a lasting resolution to trade tensions and a reduction in policy uncertainty,” OECD secretary general Mathias Cormann said.

Industrial production and trade were supported by front-loading ahead of higher US tariffs. Strong artificial intelligence (AI)-related investment boosted outcomes in the United States and fiscal support in China outweighed the drag from trade headwinds and property market weakness, it said.

US bilateral tariff rates have increased on almost all countries since May. The overall effective US tariff rate rose to an estimated 19.5 per cent at the end of August, the highest rate since 1933.

The full effects of tariff increases have yet to be felt, with many changes being phased in over time and companies initially absorbing some tariff increases through margins, but are becoming increasingly visible in spending choices, labour markets and consumer prices, the report noted.

Signs of softening are appearing in labour markets, with rising unemployment rates and declining job openings as a share of the unemployed in some economies, including the United States.

Disinflation has levelled off in many economies, with rising food prices behind a resurgence of goods inflation and services inflation generally remaining persistent.

Financial market conditions have eased in recent months in advanced and emerging-market economies, with buoyant asset prices, improving credit provision and low corporate bond spreads. Nonetheless, asset values appear stretched and there is growing concern about future fiscal risks.

Significant risks to the economic outlook remain. Further increases in bilateral tariff rates, a resurgence of inflationary pressures, increased concern about fiscal risks, or substantial risk repricing in financial markets could all lower economic growth relative to the baseline, the report remarked.

High and volatile crypto-asset valuations also raise financial stability risks given growing interconnectedness with the traditional financial system.

On the upside, reductions in trade restrictions or faster development and adoption of AI technologies could strengthen growth prospects.

Fiscal discipline is needed to safeguard longer-term debt sustainability and maintain space to react to future shocks. Credible medium-term budgetary adjustment paths with stronger efforts to contain and reallocate spending and enhance revenues are key to ensuring debt burdens stabilise.

Enhanced structural reform efforts are needed to durably improve living standards and help realise the potential gains from new technologies such as artificial intelligence.

ALCHEMPro News Desk (DS)