OECD credits AI spending for holding global growth together

On Tuesday, the Organization for Economic Co-operation and Development (OECD) announced that global GDP is holding up better than expected, as a rise in artificial intelligence investment helps mitigate the impact of U.S. tariff hikes. 

The OECD warned that this resilience is still brittle and that any renewed trade disputes or unfulfilled AI aspirations could jeopardize the future.

In the OECD Economic Outlook, the organization estimated that global growth would decline moderately from 3.2% in 2025 to 2.9% in 2026, leaving its forecasts unchanged from those in its prior estimates in September. The OECD projected that global growth would recover to 3.1% in 2027.

OECD projects global growth amid tariff challenges

OECD forecasts that near-term activity will decrease as higher effective tariff rates progressively feed through, weighing on investment and trade, amid continued geopolitical and economic uncertainty. The organization claimed that growth is likely to firm again later in 2026 as the impact of tariffs fades, financial conditions recover, and lower inflation stimulates consumption, with rising Asian economies being the leading drivers of global growth.

According to OECD, the U.S. economy is expected to fall from 2.8% in 2024 to 1.8% in 2025 and then drop to 1.7% in 2026. In 2027, the U.S. economy is projected to be at 1.9%

The OECD said that AI investment, fiscal support, and predicted Federal Reserve rate cuts are helping counter the drag from tariffs on imported products, lower immigration, and federal employment cutbacks.

The Paris-based organization revised its prediction for the euro zone’s 2025 growth to 1.3% from 1.2%, underpinned by strong labor markets and increasing public investment in Germany. According to the organization, growth is expected to slow to 1.2% in 2026, down from 1% previously due to financial constraints in France and Italy.

According to the OECD Economic Outlook, China’s growth is forecast to remain stable at 5% in 2025, up from 4.9% in the previous forecast. The organization expects China’s growth to drop to 4.4% in 2026, unchanged from the last outlook, as fiscal assistance expires and new U.S. tariffs on products imported from China take effect.

Japan’s GDP is predicted to rise 1.3% in 2025, up from 1.1%, driven by strong corporate earnings and investment, before dropping to 0.9% in 2026.

OECD warns of persistent global inflation risks

The Paris-based organization said that inflation is forecast to drop in most G20 economies as economic growth moderates and labor market pressures ease. The OECD stated that headline inflation remains sticky in some locations but is predicted to return to its goal by 2027 in almost all major economies.

According to the International Economic Organization, global trade growth is predicted to decrease from 4.​2% in 2025 to 2.3% in 2026 as the full effects of tariffs weigh on investment and consumption.

The OECD Economic Outlook revealed that most major economies are expected to return to their inflation targets set by central banks by mid-2027. In the U.S., inflation is expected to peak in mid-2026, following a period of tariff pass-through, and then decline.

In China and certain emerging countries, inflation is predicted to rise gradually as excess production capacity is eliminated.

The Paris-based organization stated that countries need to discover ways of participating cooperatively within the global trading system. Additionally, the organization stated that countries need to work together to make trade policy more predictable and secure a lasting resolution to trade disputes.

According to OECD, most major central banks are likely to hold or cut borrowing prices during the coming year as inflation pressures recede. The Federal Reserve is expected to lower rates somewhat by the end of 2026, barring any inflation surprises from tariffs.

The international economic organization said that central banks should remain sensitive to fluctuations in inflation dynamics. The financial watchdog further claimed that steady policy rate reductions can continue if underlying inflation continues to decline and expectations remain anchored. 

The OECD warned that countries experiencing tariff-driven price pressures may need to be more cautious, adjusting the pace of interest-rate cuts to avoid reigniting inflation.

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