The world and U.S. economy are facing major threats to growth that could start as soon as the second half of the year and persist into 2026 thanks to President Donald Trump’s tariffs. That’s the outlook from the Organisation for Economic Co-operation and Development (OECD), the international, multilateral organization with the mission of driving the highest possible economic growth for the world.
Global growth is predicted to drop to 2.9% while U.S. growth is set to hit 1.5% in 2026, a significant decrease from the respective 3.3% and 2.8% growth in 2024. The major threats leading to the decrease in growth prospects are tariffs, immigration changes, and inflation, according to the OECD’s latest report.
Fallout from tariffs is especially salient, the OECD warned.
President Trump since returning to office in January has increased tariffs for trading partners across the board with some countries facing duties as high as 50%. America’s effective tariff rate of 19.5%, the highest since 1933, is already affecting spending choices, labor markets, and consumer prices, the OECD claimed, but more fallout is on the way.
“The impacts of higher tariff rates are yet to be fully felt in the US economy,” the organization wrote in its Tuesday report.
The Paris-based organization claimed the full effect of tariffs is yet to hit because many of the changes are being phased in over time and some companies, at least initially, are absorbing the higher costs. Yet, the effects are already starting to seep into the labor market as evidenced by the Fed’s decision last week to lower interest rates, and Fed chairman Jerome Powell’s observation that young people especially are finding it difficult to land a job. Even Trump’s former economic adviser Gary Cohn warned this week that faced with tariff uncertainty, companies are turning to layoffs to bolster their margins.
The full economic shock of tariffs, however, may kick in as soon as this year, the OECD said.
“Growth is expected to soften noticeably in the second half of this year, as front-loading activity unwinds and higher effective tariff rates on imports to the United States and China dampen investment and trade growth.”
For now, the OECD has lifted its prediction of global growth to 3.2% for the year, up from the 2.9% it forecasted in June. Predicted U.S. growth rose to 1.8%, an uptick from the 1.6% predicted in June. Still, the OECD warned it had not revised global or U.S. prospects for next year, and the outlook is not good.
Driving the upward revisions were efforts by industry to front-load trade to avoid the worst of U.S. tariffs earlier this year. Large investments in AI companies have also helped boost the world economy’s outlook, the OECD said.
“Reductions in trade restrictions or faster development and adoption of artificial intelligence technologies could strengthen growth prospects,” the OECD wrote in the report.
