Global growth is holding up better than expected as an artificial intelligence investment boom helps offset some of the shock from U.S. tariff hikes, the OECD said on Tuesday, nudging up its outlook for some major economies.

The Paris-based organisation warned, however, that global growth was vulnerable to any new outbreak of trade tensions while investor optimism about AI could trigger a stock market correction if expectations are not met.

In its Economic Outlook, the Organisation for Economic Cooperation and Development forecast global growth would slow modestly from 3.2% in 2025 to 2.9% in 2026, leaving its forecasts untouched from its last estimates in September. It predicted a rebound to 3.1% in 2027.

OECD head Mathias Cormann said the trade shocks triggered by U.S. President Donald Trump's tariff hikes had so far proved relatively mild, but added their costs were likely to rise.

"The full effects of those higher tariffs since the start of the year will become clearer as firms run down the inventories that they built up," he told a press conference.

UPGRADED GROWTH FORECASTS FOR 2025, BUT RISKS REMAIN

The U.S. economy is forecast to grow 2% in 2025, revised up from 1.8% in September, before slowing to 1.7% in 2026 - up from 1.5% predicted in September.

AI investment, fiscal support and expected Federal Reserve rate cuts are helping offset the drag from tariffs on imported goods, reduced immigration and federal job cuts, the OECD said.

However, it warned that the Trump administration had put U.S. fiscal policy on an unsustainable trajectory with large budget deficits and rising debt that would require a "significant adjustment" in the coming years.

China's growth is expected to hold steady at 5% in 2025, up from 4.9% in September, before slowing to 4.4% in 2026 - unchanged from September - as fiscal support fades and new U.S. tariffs on goods imported from China bite.

The euro zone's 2025 growth forecast was revised up to 1.3% from 1.2%, supported by resilient labour markets and increased public spending in Germany. Growth is expected to moderate to 1.2% in 2026 - it was seen at 1% previously - as budget tightening in France and Italy weighs on the outlook.

Japan's economy is projected to grow 1.3% in 2025, up from 1.1%, and buoyed by strong corporate earnings and investment, before slowing to 0.9% in 2026.

TRADE AND INFLATION OUTLOOK

Global trade growth is expected to moderate from 4.2% in 2025 to 2.3% in 2026 as the full effects of tariffs weigh on investment and consumption. Elevated trade policy uncertainty limits prospects for a recovery.

Inflation is projected to gradually return to central bank targets by mid-2027 in most major economies. In the U.S., inflation is expected to peak in mid-2026 due to tariff pass-through before easing. In China and some emerging markets, inflation is projected to rise modestly as excess production capacity declines.

Most major central banks are expected to maintain or lower borrowing costs over the coming year as inflation pressures ease. The Federal Reserve is projected to cut rates slightly by the end of 2026, barring inflation surprises from tariffs.

By: DocMemory
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