Donald Trump’s trade wars are splintering the global economy and unpicking progress made to reboot growth and tackle inflation, the Organisation for Economic Co-operation and Development (OECD) has warned.
In its latest update on the health of the world economy, the leading Paris-based institution downgraded the prospects for global growth this year and next, including a sharp hit to activity in the US, Canada and Mexico.
The OECD cut its forecast for UK growth by 0.3 percentage points this year to 1.4%, and by 0.1 percentage points for 2026 to 1.2%.
The body representing the world’s richest economies said recent higher levels of economic growth and progress to bring down inflation was being undermined by the fallout from higher trade barriers and mounting geopolitical uncertainty.
Cutting its global growth forecast for this year from 3.3% to 3.1%, it said that significant risks still remained. The global economy grew 3.2% in 2024.
Higher and broader increases in trade barriers would hit growth and add to inflation, while a climbdown would help reduce uncertainty and strengthen activity.
“Significant risks remain. Further fragmentation of the global economy is a key concern. Higher and broader increases in trade barriers would hit growth around the world and add to inflation,” the OECD said in its interim economic outlook report.
The OECD said: “Governments need to find ways of addressing their concerns together within the global trading system to avoid a significant ratcheting-up of retaliatory trade barriers between countries …
“A broad-based further increase in trade restrictions would have significant negative impacts on living standards.”
Basing its projections on the assumption that Trump pushes ahead with plans to impose 25% tariffs on almost all merchandise imports from Canada and Mexico from April, the OECD said activity would be hit and inflation stoked across all three economies.
It said Mexico would be pushed into a deep recession this year – with output shrinking by 1.3% in 2025 and 0.6% in 2026 – and cut its forecasts for growth in Canada by almost half.
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It reduced its US growth forecasts from 2.5% to 2.2% for this year and from 2.1% to 1.6% in 2026 and growth in China is projected to slow from 4.8% this year to 4.4% in 2026.
As a relatively small open economy the UK would also be hit by lower levels of international trade and business investment.
With the UK government on the back foot on the economy before next week’s spring statement, the chancellor, Rachel Reeves, said the OECD report showed the world was changing.
“Increased global headwinds such as trade uncertainty are being felt across the board. A changing world means Britain must change too, and we are delivering a new era of stability, security and renewal, to protect working people and keep our country safe,” Reeves said.
“This means we can better respond to global uncertainty, with the UK forecast to be Europe’s fastest-growing G7 economy over the coming years – second only to the US.”
In the UK, the OECD held its predictions for inflation at 2.7% this year and 2.3% in 2026.
