OECD says full brunt of US tariff shock yet to come as growth holds up
PARIS – Global growth is holding up better than expected, but the full brunt of the US import tariff shock has yet to be felt as investments in artificial intelligence props up US activity for now and fiscal support cushions China’s slowdown, the OECD said on Sept 23.
In its latest Economic Outlook Interim Report, the Organisation for Economic Cooperation and Development (OECD) said the full impact of US tariff hikes
was still unfolding
, with firms so far absorbing much of the shock through narrower margins and inventory buffers.
Many firms stockpiled goods ahead of the Trump administration’s tariff hikes, which lifted the effective US rate on merchandise imports to an estimated 19.5 per cent by end-August – the highest since 1933, in the depths of the Great Depression.
The global economy is now expected to slow only slightly – to 3.2 per cent in 2025 from 3.3 per cent in 2024 – compared to the 2.9 per cent the OECD had forecast in June.
However, the Paris-based organisation kept its 2026 forecast at 2.9 per cent, with the boost from inventory building already fading and higher tariffs expected to weigh on investment and trade growth.
The OECD forecast US economic growth would slow to 1.8 per cent in 2025 – up from the 1.6 per cent it forecast in June – from 2.8 per cent in 2024 before easing to 1.5 per cent in 2026, unchanged from the previous forecast.
An AI investment boom, fiscal support and interest rate cuts by the Federal Reserve are expected to help offset the impact of the higher tariffs, a drop in net immigration and federal job cuts, the OECD said.
In China, growth was also seen slowing in the second half of 2025 as the rush to ship exports before the US tariffs recedes and fiscal support wanes.
Nonetheless, China’s economy is expected to grow 4.9 per cent in 2025 – up from 4.7 per cent in June – before slowing to 4.4 per cent in 2026, revised up from 4.3 per cent.
geopolitical tensions
were seen offsetting the boost from lower interest rates, the OECD said.
The bloc’s economy was seen growing 1.2 per cent in 2025 – revised up from 1 per cent previously – and 1 per cent in 2026 – down from 1.2 per cent – as increased public spending in Germany lifts growth while belt-tightening weighs on France and Italy.
Japan’s economy is expected to benefit in 2025 from strong corporate earnings and a rebound in investment, lifting growth to 1.1 per cent – up from 0.7 per cent – before momentum fades and the expansion slows to 0.5 per cent in 2026, revised up from 0.4 per cent.
The OECD revised its growth forecast for Britain up to 1.4 per cent in 2025 from 1.3 per cent, and kept its 2026 forecast unchanged at 1 per cent.
With growth slowing, the OECD said it expects most major central banks to lower borrowing costs or keep policy loose over the coming year, as long as inflation pressures continue to ease.
It projected the US Federal Reserve would cut rates further as the labour market weakens, unless higher tariffs trigger broader inflation.
Australia, Britain and Canada are expected to see gradual rate cuts, while the European Central Bank is seen holding steady with inflation near its 2 per cent target.
Japan, however, is expected to raise rates as it continues its slow withdrawal from ultra-loose monetary policy. REUTERS