Full impact of US tariff shock yet to come as growth holds up: OECD

PARIS: Global growth is holding up better than expected, but the full brunt of the US import tariff shock is still to be felt as AI investment props up US activity for now and fiscal support cushions China’s slowdown, the OECD said on Tuesday.

In its latest Economic Outlook Interim Report, the Organisation for Economic Cooperation and Development said the full impact of US tariff hikes was still unfolding, with firms so far absorbing much of the shock through narrower margins and inventory buffers.

Many firms stockpiled goods ahead of the Trump administration’s tariff hikes, which lifted the effective US rate on merchandise imports to an estimated 19.5 percent by end-August — the highest since 1933, in the depths of the Great Depression.

“The full effects of these tariffs will become clearer as firms run down the inventories that were built up in response to tariff announcements and as the higher tariff rates continue to be implemented,” OECD head Mathias Cormann told a news conference.

OECD’S 2025 GROWTH FORECASTS UPGRADED

Global economic growth is now expected to slow only slightly — to 3.2 percent in 2025 from 3.3 percent last year — compared to the 2.9% the OECD had forecast in June.

However, the Paris-based organisation kept its 2026 forecast at 2.9 percent, with the boost from inventory building already fading and higher tariffs expected to weigh on investment and trade growth. “Additional increases in barriers to trade or prolonged policy uncertainty could lower growth by raising production costs and weighing on investment and consumption,” Cormann said.

The OECD forecast US economic growth would slow to 1.8 percent in 2025 — up from the 1.6 percent it forecast in June — from 2.8 percent last year before easing to 1.5 percent in 2026, unchanged from the previous forecast. An AI investment boom, fiscal support and interest rate cuts by the Federal Reserve are expected to help offset the impact of the higher tariffs, a drop in net immigration and federal job cuts, the OECD said.