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The global economy has been resilient in 2024, but some signs of weakness are appearing against a backdrop of slower growth, lingering inflation and an uncertain policy environment, according to the OECD's latest Interim Economic Outlook.
The Outlook projects global growth slowing to 3.1% in 2025 and 3.0% in 2026, with important differences across countries and regions.
GDP growth in the United States is projected at 2.2% in 2025 before slowing to 1.6% in 2026. In the euro area, growth is projected to be 1.0% in 2025 and 1.2% in 2026. China's growth is projected to slow from 4.8% this year to 4.4% in 2026.
Inflation is projected to be higher than previously expected, although still moderating as economic growth softens. Services price inflation is still elevated amidst tight labour markets, and goods price inflation has begun picking up in some countries, although from low levels. Annual headline inflation in G20 economies is projected at 3.8% in 2025 and 3.2% in 2026. These projections have been revised upwards by 0.3 percentage points compared to our Economic Outlook in December.
"The global economy has shown some real resilience, with growth remaining steady and inflation moving downwards. However, some signs of weakness have emerged, driven by heightened policy uncertainty," OECD Secretary-General Mathias Cormann said. "Increasing trade restrictions will contribute to higher costs both for production and consumption. It remains essential to ensure a well-functioning, rules-based international trading system and to keep markets open."
The Outlook highlights a range of risks, starting with the concern that further trade fragmentation could harm global growth prospects.
The Outlook also draws attention to the risk of macroeconomic volatility. An unexpected downturn, policy change or deviation from the projected disinflation path could trigger market corrections, significant capital outflows, and exchange rate fluctuations, particularly in emerging markets. High public debt levels and elevated asset valuations further heighten these risks.
Given these challenges, the Outlook highlights key policy priorities. Central banks should remain vigilant given heightened uncertainty and the potential for higher trade costs to push up price pressures. Provided inflation expectations remain well anchored, and trade tensions do not intensify further, policy rate reductions should continue in economies in which underlying inflation is projected to moderate and aggregate demand growth is subdued.
Decisive fiscal actions are needed to ensure debt sustainability, preserve room for reacting to future shocks and generate resources to meet large impending spending pressures. Stronger efforts are needed to reallocate spending towards activities that support longer-term growth, set within credible medium-term adjustment paths tailored to country-specific circumstances.
With potential output generally weakening across both advanced and emerging economies since the global financial crisis, ambitious structural reforms are needed. Governments must enact reforms to improve productivity and enhance the adoption of new technologies by boosting market competition and eliminating excessive regulatory burdens on firms.
Enhancing education and skills development and reducing constraints in labour and product markets that impede investment and labour mobility will be key. Artificial Intelligence (AI) presents a unique opportunity to revive productivity.
"The OECD projects AI to significantly boost labour productivity growth over the next decade, with even greater potential if synergies with robotics are considered," OECD Chief Economist Álvaro Santos Pereira said. "Yet, the gains from AI may diminish if policies do not facilitate higher adoption rates and facilitate labour reallocation."
