OECD slashes US economic growth forecast due to tariffs and policy uncertainty

Economic growth expectations in the United States were reduced due to the high customs tariffs in a new report issued by the Organization for Economic Cooperation and Development (OECD) on Tuesday.

OECD expectations of US economic growth increased to 1.6 % in 2025 and 1.5 % in 2026, much lower than 2.8 % growth in GDP (GDP) recorded last year.

The group attributed the slowdown forecasts to “a significant increase in the rate of effective tariffs for imports and revenge on some commercial partners, uncertainty in high economic policy, a great slowdown in net immigration, and a significant reduction in the federal workforce.”

It is also expected that inflation will increase the annual title to 3.9 % by the end of 2025 due to the high rates of imports caused by increased customs tariffs, before mitigating next year amid the growth of moderate gross domestic product and high levels of unemployment.

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“The risks facing growth tend to the downside, including a more fundamental slowdown in economic activity in the face of uncertainty in politics, the greatest bullish pressure on prices than increases in customs tariffs, and large financial market corrections,” OECD books.

The report said: “There has been a major shift in American commercial policy since February through a wide range of advertisements related to new definitions and other commercial restrictions, some of which were reflected, delayed or modified, as well as revenge by some commercial partners.”

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President Donald Trump raised the tariffs in an attempt to reformulate industries to the United States (Chip Somodevilla / Getty Images / Getty Images)

In expectations, President Donald Trump’s tariff, which was valid in mid -May, will remain in place during the rest of 2025 until 2026. The Organization for Economic Cooperation and Development indicated that the actual tariff for Chinese imports has risen about 30 %, while the tariff rate on other trade partners increases about 10 %, on average.

“This represents an unprecedented increase in the average rate of effective tariff, raising it from about 2.5 % to more than 15 %, which is the highest level since World War II,” wrote the Organization for Economic Cooperation and Development. “While the new customs tariff may increase the incentives that can be produced in the United States, the high rates of imports will reduce the real income of consumers and increase the price of imported intermediate commodities. Definitions and uncertainty in politics are disrupted and the value chains affect negatively.”

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Definitions are taxes on imported goods paid by the importer, which usually passes the high costs of consumers through high prices. (Photographer: Mark Felix / Bloomberg via Getti Imsbon / Tire)

The expectations said that the federal reserve will be able to reduce monetary policy and reduce interest rates as soon as inflation is giving up, as long as inflation expectations are well designed. He also pointed out that the federal government will need to curb a budget deficit, which is expected to grow larger in the coming years, and wrote that “the major financial amendment will be required for several years.”

The deficit is expected to increase from about 7.5 % of GDP in the United States in 2024 to more than 8 % in 2026, with a public debt rate to GDP increased 100 % by the end of 2026.

“The new tariff revenues and spending discounts resulting from the contraction of the federal workforce will be to reduce deficit,” although the Organization for Economic Cooperation and Development has noticed that “these effects will be exposed to more than a slowdown in the growth of revenues from the weakest economic activity, as well as the expected years of the financial package for the fiscal year 2026.”

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This package will expand the expired provisions of the 2017 tax cuts law and their functions, as well as reduce personal taxes and other companies, which enhances spending on defense security and borders, with discounts in spending on medicaid. The Organization for Economic Cooperation and Development said that the package is “responsible for most of the percentage expected in the gross domestic product in the deficit in 2026.”