The global economy might not get the growth rebound it desperately needs in 2025, the OECD has warned. In its latest report, the organization painted a picture of a world walking on a financial tightrope.
Risks are everywhere. Trade tensions are rising, public debt is climbing, and geopolitical conflicts are stirring chaos. Policymakers have their hands full trying to hold it all together.
The OECD predicts global growth will hover at 3.3% annually for the next two years. On the surface, that might look stable. But beneath the headline number, cracks are forming. “Robust overall performance masks significant differences across regions and countries,” said Chief Economist Alvaro Pereira.
Trade wars and fiscal headaches threaten stability
The OECD report warned that the rise in protectionist policies could disrupt trade flows, push up consumer prices, and hammer economic growth. U.S. President-elect Donald Trump’s tariff-focused agenda hasn’t gone unnoticed.
“Rising trade tensions and further moves toward protectionism might disrupt supply chains, raise consumer prices, and negatively impact growth,” the OECD said. Meanwhile, geopolitical conflicts could send energy prices soaring, adding more pressure to already fragile economies.
Debt is another time bomb ticking away. The OECD said public debt among its member countries will reach 117% of GDP by 2026, a sharp rise from pre-pandemic levels. Italy and Japan, already drowning in debt, are in particularly dire straits.
France isn’t far behind. The country’s government is currently battling a no-confidence vote over its fiscal plans. Even if the dissenters fail, political chaos could further slow economic recovery.
“A government budget agreement that reduces policy uncertainty could quickly reassure markets. If the budget is not adopted, political uncertainty would bear down on the recovery.” Weak inflation and disappointing growth could also shrink tax revenues, making things even worse.
Uneven growth across regions
The growth forecast looks like a patchwork quilt — some countries are holding up, while others are falling apart. The U.S., for example, is expected to grow at 2.4% in 2025, slower than its 2.8% in 2024. Consumer spending is softening as the job market cools. But even with this slowdown, the U.S. will still outperform the rest of the G-7 economies.
Germany, on the other hand, is struggling. It is projected to grow just 0.7% in 2025, the lowest among major economies. The eurozone as a whole is doing slightly better, with growth expected to reach 1.3% in 2025 and 1.5% in 2026. Central bank policies and tight labor markets are helping to keep the region afloat, but the recovery is far from strong.
China’s economy is slowing down too. Growth is predicted to drop from 4.9% in 2024 to 4.4% by 2026. High savings rates and a sluggish real estate sector are dragging it down.
The OECD warned that “potential further credit events may disrupt the orderly adjustment process in the real estate sector.” This could create ripple effects that reach far beyond China’s borders.
Japan is trying to claw its way back from a 0.3% contraction in 2024. Economic stimulus measures are expected to boost growth to 1.5% in 2025, but that momentum won’t last. By 2026, growth is forecast to shrink to 0.6%.
The OECD noted that Japan is an exception among major economies, as its central bank will likely stick to its ultra-loose monetary policy.
The UK is showing some signs of life. Growth is projected to rise from 0.9% in 2024 to 1.7% in 2025, thanks to real income gains and increased public spending. However, the honeymoon period won’t last long. By 2026, growth is expected to dip back to 1.3%, as higher taxes weigh on the economy.
The stakes couldn’t be higher. The global economy is at a crossroads. As Pereira put it, “Policy has a key role to play at the current juncture to manage risks and to unleash the prospects for stronger, resilient, and sustainable growth.” But the clock is ticking.
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