US economic growth is forecast to slow significantly over the next two years, with the Organisation for Economic Co-operation and Development cutting its expectations due to Donald Trump's tariff regime.
GDP is expected to grow 1.6% in 2025 and 1.5% in 2026, down from the 2.8% seen last year and below the initial forecasts of 2.2% and 1.6% the OECD made in March.
Risks to growth are tilted to the downside, the Paris-based body warned, including further weakening of consumption and investment, elevated financial market volatility, and the possibility of entrenched inflation.
The OECD attributed the slowdown to a sharp rise in effective tariff rates, high policy uncertainty, reduced immigration, and a smaller federal workforce.
“To ensure sustained growth and resilience, it will be important to mitigate the disruption and uncertainty now prevailing. One key step is to resolve tensions with international trading partners,” the OECD stated.
As well as lowering trade barriers, the report also said policy unpredictability from the Trump administration and structural fiscal imbalances were also concerning.
US inflation is forecast to peak at 3.9% by end-2025 due to higher import prices, before easing in 2026. The unemployment rate is projected to rise to 4.4% by early 2026. Meanwhile, the budget deficit is set to exceed 8.00% of GDP by 2026, with net debt surpassing 100% of GDP.
Monetary policy from the Federal Reserve is expected to remain on hold through 2025, while interest rate cuts of up to 100 basis points are projected for 2026.
The report called for clear and consistent policymaking from the White House to support business confidence and investment.