World economic growth is being revised down, as inflation and ongoing tariff wars hit major economies, prompting the world to face its weakest economic spell since the Covid-19 pandemic, according to a major international organisation.
The Organisation for Economic Co-operation and Development (OECD) said that it has revised down its predictions for world economic growth both this year and next.
The world economy is set to grow by 2.9% in both 2025 and 2026. Both of these figures are down from expectations set at the start of the year, when the OECD predicted growth rates of 3.1% and 3%, respectively.
US at epicentre
The reduction of trade barriers would be “instrumental” in fighting inflation and boosting global growth, according to the research.
The slowdown is concentrated in the US, along with three of the major targets of president Donald Trump’s tariffs: Canada, Mexico and China.
US growth is expected to slow from 2.8% in 2024, to 1.6% in 2025 and 1.5% in 2026. China is also predicted to miss its 5% growth target this year and next.
Uncertain path
“The global economy has shifted from a period of resilient growth and declining inflation to a more uncertain path,” OECD secretary general, Mathias Cormann, said.
“Governments need to engage with each other to address any issues in the global trading system positively and constructively through dialogue – keeping markets open and preserving the economic benefits of rules-based global trade for competition, innovation, productivity, efficiency and ultimately growth.”
The higher cost of trading is partially offset by falling commodity prices.
UK economy
The UK economy is expected to grow by 1.3% this year, and 1.0% in 2026. This follows a strong first quarter of the year, but this momentum is weakening, the OECD warns.
New export orders have fallen, while higher import prices are expected to add to inflation worries for many businesses.
The OECD said that strengthening public finances and delivering on the planned overhaul of the National Planning Policy would be important in boosting the British economy.
PMI
The UK economy also enjoyed a separate boost in the latest Purchasing Manager’s Index (PMI), published today (4 June), as the private sector unexpectedly returned to growth.
The latest UK composite PMI registered a score of 50.3 last month, as the UK economy returned to growth according to the survey. Any figure above 50 represents growth, while anything below represents a contraction.
However, this is still the second-weakest score since October 2023. A surging services sector and mounting business confidence contrasted with a decline in manufacturing and falling new orders.
The construction PMI’s score of 46.4 was above the ‘flash’ estimate of 45.1, and was also a slight improvement on the previous score of 45.4.
