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Good morning,
And welcome to this launch of the OECD Interim Economic Outlook.
Despite high policy uncertainty, the global economy has continued to be resilient throughout the first half of 2025 – with annualised GDP growth of 3.2% in the first six months of this year.
Growth was strong in several emerging market economies, including Brazil and India.
Trade activity, especially in the United States, accelerated in advance and in anticipation of expected tariff increases.
AI-related investment also boosted growth in the United States.
And fiscal support in China outweighed headwinds from trade and property market weakness.
However, looking ahead, trade and several high-frequency activity indicators point to slowing momentum.
Based on our analysis, as of the end of August, the average tariff rate on merchandise imports to the United States is estimated at 19.5% – which is higher than at any time between the mid-1930s and 2024.
The full effects of these tariffs will become clearer as firms run down the inventories they built up in response to tariff announcements, and as the higher tariff rates continue to be implemented.
Domestic activity indicators have weakened in recent months for several economies:
- Industrial production has declined in Brazil, Germany, and Korea; and
- Retail sales growth has fallen in China, the euro area, and the United States.
Following growth of 3.3% last year, we now project global growth of 3.2% this year and 2.9% next year.
Compared with our last Economic Outlook from June, these projections are up by 0.3 percentage points for this year – and unchanged for next year.
Among the OECD countries covered in this Interim Economic Outlook, the most significant upward revisions are for Japan, Mexico, and Türkiye.
The expected decline in global growth over 2024-2026 in part reflects high trade barriers and policy uncertainty, which are set to continue holding back business investment and trade.
Inflation is projected to decline in most G20 economies, as growth and labour markets moderate.
We project headline inflation across the G20 to decline from 6.2% last year to 3.4% this year and 2.9% next year.
One exception is the United States, where we expect tariffs to push inflation up – from 2.5% last year, to 2.7% this year, and 3.0% next year.
Risks – in particular in relation to trade, inflation and financial markets – remain significant.
Additional increases in barriers to trade, or prolonged policy uncertainty, could lower growth – by raising production costs and weighing on investment and consumption.
Inflation pressures could resurface, for example if further rises in trade restrictions or geopolitical tensions push up prices.
Goods price inflation across OECD countries has ticked up over the past year – including as a result of higher food costs – and services price inflation is still elevated.
High asset valuations, especially for technology stocks and crypto assets, like Bitcoin, also heighten financial market vulnerabilities to negative shocks.
On the upside, measures to lower trade barriers and reverse tariff increases could improve sentiment and support activity.
We need the right mix of policies to reduce uncertainty and reinvigorate growth.
First, constructive dialogue between countries remains a key priority to ensure a lasting resolution to trade tensions.
All other things being equal, well-functioning open global markets mean stronger growth, higher incomes, lower costs, and better living standards.
We need to continue to draw on these very real benefits, while tackling genuine concerns around unfair trade practices, an unlevel playing field, supply chain resilience, in particular on key strategic product lines, and more generally economic security.
Our strong advice to all governments, in particular market-based democracies, is to work together, bilaterally and multilaterally, to find the best possible ways to make our international trading arrangements fairer and function better, in a way that preserves the economic benefits of open markets and rules-based global trade.
Second, central banks should continue to be vigilant in view of the high level of uncertainty.
Monetary policy needs to respond promptly to shifts in economic or financial developments that may pose risks to price stability.
Policy rate reductions should continue in economies in which inflation is expected to moderate towards the central bank’s target, provided inflation expectations remain well-anchored.
Third, fiscal discipline is necessary to safeguard longer-term debt sustainability, to make fiscal space to deal with structural spending pressures, and to respond to shocks.
Rising spending pressures – including from population ageing and defence requirements – are coming at a time when public debt across the OECD already stands at 112% of GDP, up from 73% of GDP back in 2007.
Debt service costs are rising, as low-yielding debt matures and needs to be re-issued at higher rates.
Systematic and regular spending reviews, strengthened public procurement practices, greater use of digital technologies, and better targeting of social benefits would raise public spending efficiency, and free up spending for areas that better support opportunities and growth.
Fourth, ambitious structural reforms are important to boost prospects for growth over the medium to long term.
Current potential GDP per capita growth in the OECD is estimated at 1.3%, down from around 2.4% in the 1990s.
To unlock stronger growth and economic dynamism, we need to boost competition between firms, facilitate skills development, and raise business investment – including in AI and other digital technologies, and research and development.
Digital investment must accelerate, particularly in Europe and Japan when compared with the United States.
For example, over the past 10 years, real business investment in software and data has grown by 159% in the United States – compared to just 55% in Europe, and 8% in Japan.
We estimate that, even in a scenario of slow adoption, AI will contribute between 0.2 and 0.4 percentage points to annual labour productivity growth in G7 countries over the next decade.
Policies that enable faster adoption of AI and of digital tools complementary with AI, for example relevant software, would boost these gains by an additional 0.7 to 0.9 percentage points.
In conclusion,
While the global economy has remained resilient so far, signs of weakening activity highlight the importance of multilateral co-operation on trade, vigilant monetary policy, fiscal discipline and ambitious structural reforms.
By acting decisively, governments can reduce risks, strengthen resilience and, ultimately, achieve sustained increases in living standards.
Thank you and, with that, I pass the floor to our Chief Economist, Alvaro Pereira, to present our analysis in some more detail.
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