Global growth will slow this year as Donald Trump’s trade wars hit the world economy, a new report says.
The Organisation of Economic Cooperation and Development (OECD) has cut its forecasts for growth in 2025 and 2026, and warned that the global outlook is becoming “increasingly challenging”.
The OECD now predicts that global GDP growth will slow from 3.3% in 2024 to 2.9% this year and in 2026, “on the technical assumption that tariff rates as of mid-May are sustained despite ongoing legal challenges”.
In its latest global economic outlook, just released, the Paris-based thinktank explains: "The slowdown is concentrated in the United States, Canada and Mexico, with China and other economies expected to see smaller downward adjustments."
Back in March, the OECD had predicted that global GDP growth would slow to 3.1% in 2025, and then to 3.0% in 2026.
Today, it warns that global trade growth is likely to slow substantially over the next two years, after a burst of activity earlier this year as firms tried to stock up on goods ahead of tariff increases.
It says: "Substantial increases in barriers to trade, tighter financial conditions, weaker business and consumer confidence and heightened policy uncertainty will all have marked adverse effects on growth prospects if they persist.
"Higher trade costs, especially in countries raising tariffs, will also push up inflation, although their impact will be offset partially by weaker commodity prices."
Uncertainty is expected to hold back business investment, the OECD adds.
It fears that further increases or swift changes in trade barriers could intensify the growth slowdown and trigger significant disruptions in cross-border supply chains, and that the tariffs could push up inflation expectations, leading to higher interest rates and lower growth.
But on the upside, a reversal of the increase in trade barriers would support growth and reduce inflation, the OECD adds.
Meanwhile, Thames Water’s efforts to avoid nationalisation have taken a blow.
The US investment firm KKR has walked away from the chance to take a stake in the troubled water utility, putting its future in fresh doubt.
Thames had selected KKR as a “preferred partner” at the end of March, as it looked for a partner to take a stake in its business.
But today, Thames told the City that KKR has indicated that it will not be in a position to proceed, and its preferred partner status has now lapsed.
Sir Adrian Montague, the chair of Thames Water, says: “While today’s news is disappointing, we continue to believe that a sustainable recapitalisation of the company is in the best interests of all stakeholders and continue to work with our creditors and stakeholders to achieve that goal.
The company will therefore progress discussions on the senior creditors’ plan with Ofwat and other stakeholders. The board would like to thank the senior creditors for their continuing support.”
Thames, which is struggling under a debt pile of close to £20bn, also says that “certain senior creditors” have been working on alternative transaction structures to seek to recapitalise the business. It will now “progress discussions on the senior creditors’ plan with Ofwat and other stakeholders,” it says.
If a deal can’t be reached, and Thames falls into bankruptcy, then the company could be taken into a special administration regime by the UK government.
The agenda
• 8am BST: OECD begins Ministerial Council Meeting in Paris
• 8am BST: OECD to release latest global economic outlook
• 10am BST: Eurozone inflation flash reading for May
• 10.15am BST: UK Treasury committee hold hearing with Bank of England policymakers
We'll be tracking all the main events throughout the day … |
