U.S. President Donald Trump’s trade wars are expected to weigh on global economic growth, the Organisation for Economic Co-operation and Development (OECD) said. The Paris-based institution lowered its global GDP growth forecast for this year to 3.1%, down 0.2 percentage points from its earlier projection in December.

“Global GDP growth is expected to moderate from 3.2% in 2024 to 3.1% in 2025 and 3.0% in 2026, with higher trade barriers in several G20 economies and increased policy uncertainty weighing on investment and household spending,” the OECD said on March 17 in its interim Economic Outlook report. The annual GDP growth outlook for this year and next year has been revised down by 0.2 percentage points and 0.3 percentage points, respectively, from December.

The OECD publishes interim economic outlooks in March and September every year and releases complete economic forecasts in May–June and November–December. If this projection turns out to be accurate, global growth in 2025 and 2026 will be the weakest since 2020 when the COVID-19 pandemic triggered a 3% contraction.

The report points to “further fragmentation of the global economy” caused by higher tariffs as a “key concern” that could harm global growth prospects. “One possible risk is the escalation of trade restrictive measures,” the OECD noted, which could decrease trade volumes and push up import prices. The rise of protectionist policies has forced governments to boost defense spending, adding to long-term fiscal pressure. Based on such concerns, the OECD raised inflation projections to 3.8% this year and 3.2% next year, both up 0.3 percentage points from the previous forecast.

Nations closely tied to American trade are anticipated to suffer most from President Trump’s suggested tariff increases. The newest projection has reduced Canada’s economic growth estimate for this year by 1.3 percentage points down to 0.7%, whereas Mexico’s outlook saw a reduction of 2.5 percentage points, now forecasting a contraction at -1.3%.

The OECD reduced South Korea’s growth forecast by 0.6 percentage points to 1.5% for this year. This adjustment matches the most recent projection from the Bank of Korea yet falls below the forecasts provided by the Korea Development Institute at 1.6% and the government at 1.8%.

Previously, traditional diplomatic and security allies were connected through economic collaboration,” Professor Ahn Dong-hyun from Seoul National University explained. “However, the Trump administration has established a fresh approach where economic advantages dictate trade relationships, even amongst allies.

The annual GDP growth forecast for the United States has been revised downward from 2.4% to 2.2%. Similarly, the OECD reduced predictions for economic expansion in Japan, Germany, and the UK. According to the report, “Real GDP growth in the Eurozone is anticipated to reach 1.0% in 2025 and increase slightly to 1.2% in 2026 due to elevated uncertainties keeping development contained.” Various European nations continue to grapple with repercussions stemming from American trade strategies along with persistent instability caused by the conflict between Russia and Ukraine.

Nevertheless, the OECD increased China’s growth projection for this year by 0.1 percentage points. “China’s economy is anticipated to expand by 4.8% in 2025, with the adverse effects of tariffs being mostly counterbalanced by robust policy backing, followed by a deceleration to 4.4% in 2026.”