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Good morning,
Welcome to the launch of this OECD Economic Outlook. Global growth has continued at a resilient pace – driven by the front-loading of trade in anticipation of higher tariffs earlier in the year, strong AI investment, and supportive macroeconomic policies.
However, our Outlook highlights key fragilities on the horizon:
From elevated trade restrictions, policy uncertainty, and concerns about supply chain security;
To rising public spending pressures from increased defence requirements and the rising economic and fiscal impacts of population ageing;
And vulnerabilities associated with high financial asset valuations, such as for AI investments and cryptocurrencies.
We now project global GDP to grow by 3.2% this year, which is only slightly below the 3.3% rate of growth achieved last year.
For next year, global growth is expected to moderate to 2.9%, as higher tariffs in the United States and China raise business costs, reducing growth in trade and investment.
For 2027, we project a small rebound in growth to 3.1%, as the peak impact of higher tariffs passes and inflation declines.
OECD countries are growing at around half the rate of global growth, while economic convergence elsewhere, especially in emerging Asia, remains the main driver of global growth.
Activity in the technology sector has been strong, boosted by sharp rises in investment in AI and other digital technologies.
Industrial production of computer and electronic products has increased much more than total industrial production across countries and regions.
In the United States, technology investments, driven in particular by imports of information and communication technology products, were a key driver of economic activity in the first half of this year.
Fiscal and monetary policies have helped sustain activity.
OECD countries’ primary deficit – that is, governments’ fiscal deficit excluding spending on interest payments – continues to be significantly higher than in 2022.
Monetary policy has eased in most advanced economies over the past year, which has lowered bank lending rates for firms and households, supporting credit growth.
The average legislated tariff rate on merchandise imports to the United States is estimated at 14.9% in November, markedly up from 2.3% in January – but down from 16.0% in September, as a result of several new trade agreements.
The full effects of those higher tariffs since the start of the year will become clearer as firms run down the inventories that they built up in reacting to the tariff announcements earlier this year and as the higher tariff rates are implemented.
So far, our estimate of the tariff rate that is actually being applied in the United States, based on the latest available reported customs duties and import statistics, is below the legislated rate.
Which suggests to us that tariff collections are likely to rise in the months ahead.
Labour markets continue to be relatively tight, though there are some signs of easing.
Job vacancies have fallen back to their pre-pandemic levels of 2019.
Still, the unemployment rate across the OECD was 4.9% in the second quarter and 5.0% in September – only slightly up from its record low of 4.8% in June 2023.
Our projections point to a moderation of global GDP growth to 3.2% this year and 2.9% next year – followed by a small rebound to 3.1% in 2027.
Compared with our Economic Outlook from June, these projections are up by 0.3 percentage points for this year – and unchanged for next year.
Highlighting some country-specific developments:
In the United States, growth is expected to slow from 2.0% this year to 1.7% next year, as higher tariffs take full effect, while for 2027 we project a small pick-up to 1.9%.
For Japan’s economy, we project robust growth of 1.3% this year, and 0.9% in both 2026 and 2027, supported by resilient domestic demand.
In the euro area, growth is projected at 1.3% this year, 1.2% next year, and 1.4% in 2027, as increased trade frictions are expected to be offset by capital spending from the Recovery and Resilience Facility and higher defence spending.
China’s growth is projected to slow from 5.0% this year to 4.4% next year, and 4.3% in 2027 – as a result of higher tariff rates on exports to the United States, continuing adjustment in the real estate sector, and fading fiscal support.
Inflation is expected to continue to decline progressively.
For the OECD, we project inflation of 4.2% this year, 3.5% next year, and 2.8% in 2027.
One exception is the United States, where we expect tariffs to push inflation up – from 2.7% this year to 3.0% next year.
By the middle of 2027, inflation is projected to return to the central bank’s target in most major economies.
This outlook remains fragile, with significant risks.
The outlook for trade and trade policy is particularly uncertain. Import-restrictive measures on goods introduced since the beginning of 2009 are estimated to affect 16.8% of world imports – up from 0.6% in 2009 and 2.8% in 2016.
Additional trade barriers would lower growth prospects, and likely push inflation higher in countries imposing tariffs.
On the upside, measures to lower trade barriers and reverse tariff increases would improve sentiment and support activity.
Another key concern is the resilience of global supply chains, given the high level of concentration in production of some key inputs, including rare earths and critical minerals.
For example, China accounts globally for more than 50% of all rare earth mining and lithium, and more than 90% of all magnet manufacturing and graphite.
A sudden disruption in the supply of these key inputs could lead to output drops in sectors such as energy, AI and information and communication technologies, defence, and automobiles.
Higher spending needs – arising from defence requirements and population ageing – are increasing fiscal risks.
NATO countries plan to raise their core military spending to at least 3.5% of GDP by 2035.
Population ageing is set to increase old-age dependency ratios across OECD countries significantly – from 33 adults aged 65 and over for every 100 people of working age today, to 52 in 2050.
The economic, social and fiscal impacts are enormous.
This year’s OECD Employment Outlook estimates that the fall in employment due to population ageing will reduce the level of per capita GDP in 2060 by 14% under current policy settings.
In terms of fiscal impacts:
Our assessment is that the decline in economic growth due to population ageing would cause tax revenues in 2060 to be around 14% lower than they would have otherwise been.
Simulations based on the OECD Long-Term Model find that – without policy action – higher spending on pensions and health due to population ageing will push net government debt in the OECD from around 75% of GDP today to 230% in 2060, compared to 150% without ageing.
Asset valuations, especially of US technology companies, are high – reflecting strong optimism about AI and its potential productivity gains.
Since 2020, forward earnings have risen three times as fast in the technology sector as in other sectors.
If these expectations materialise, economic growth could be higher than in our projections.
In contrast, should the gains from AI be smaller than expected or delayed, sharp asset repricing could occur.
The size of non-bank financial institutions – such as insurance corporations, pension funds, hedge funds, and investment funds – has risen significantly over the past two decades.
Some of these institutions, including real estate investment trusts and business development companies, are both highly leveraged and less regulated than banks, making them vulnerable to shocks.
The use of cryptocurrencies has also increased sharply.
For example, the transaction volume of stablecoins more than doubled from 2023 to 2024.
Stablecoin issuers have become major holders of US Treasury bills.
A potential market disruption or turn in investor sentiment for cryptocurrencies may lead to a sell-off of Treasury bills, straining government bond market liquidity.
Turning now to policy priorities.
Constructive dialogue between countries is central to ensure a lasting resolution to trade tensions.
All other things being equal, well-functioning open global markets mean better living standards and stronger growth.
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 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.
Our model simulations highlight the benefits:
A broad-based, global decline of tariff rates by 1.5 percentage points could boost global GDP by almost 0.3% by the 3rd year, while also lowering annual inflation in the global economy by more than 0.2 percentage points in the first 3 years.
Central banks must remain vigilant.
Continued rate cuts are warranted where inflation is firmly at or returning to targets, yet central banks need to be ready to adjust in case of renewed inflationary pressures or unexpected labour market weakness.
Most major advanced economies are expected to continue to lower rates, or hold rates steady, over the next few quarters.
An exception is Japan, where the policy rate is projected to rise from 0.5% to 2% by the end of 2027 as inflation becomes more firmly anchored at the central bank’s target.
With the importance of non-bank financial institutions rising, private credit – that is, lending by non-banks to households and firms – has expanded significantly, to around 11% of bank corporate loans last year.
Financial regulators should ensure effective oversight of non-bank financial institutions – through timely data collection and stress tests to identify exposures and mitigate systemic risks.
Fiscal discipline is necessary to tackle high and rising public debt, and maintain fiscal space to react to future shocks.
Last year, public debt in the OECD stood at 111% of GDP – up from 73% in 2007.
Over the same time span, public debt in G20 emerging market economies rose from 54% to 70% of GDP.
Costs for servicing public debt are also rising.
Government interest payments increased as a share of GDP in about two-thirds of OECD countries in 2024, reaching 3.3% on average.
Fiscal plans should focus on controlling growth in expenditures, improving spending efficiency, targeting social benefits toward those in need, and reallocating spending to areas that better support opportunities and growth.
Ambitious structural reforms are essential to unlock stronger prospects for economic growth.
Potential GDP per capita growth in the OECD is estimated at 1.4% this year, down from around 2.2% in the late 1990s.
Job creation has been boosting growth in recent years, while the contributions of productivity growth and especially investment have declined significantly.
Regulatory policy reforms – the subject of this Economic Outlook’s special chapter – can be an especially powerful driver of stronger growth.
For 37 of the 55 countries in the Outlook, reducing red tape and simplifying regulations is a key priority.
Reforming regulatory design and oversight and lowering entry barriers in services sectors are two other policy priorities that are relatively common across countries.
New OECD empirical estimates highlight the significant economic gains from easing regulations.
For example, bringing regulations on retail trade in line with the 3 OECD countries with the most competition-friendly regulations would boost labour productivity by 2.3% across OECD countries in the long term.
And less strict regulations of professional services would raise labour productivity by 1.6% on average.
In closing,
This OECD Economic Outlook projects a relatively mild negative impact of recent trade shocks and elevated uncertainty on the global economy over the next two years – though fragilities are significant and growth will remain low by historical standards.
In order to lift economic growth, and durably strengthen living standards, countries need to act decisively, and co-operatively, tackling underlying risks, maintaining fiscal sustainability, and advancing structural reforms.
Thank you.
Working with over 100 countries, the OECD is a global policy forum that promotes policies to preserve individual liberty and improve the economic and social well-being of people around the world.