Global growth faces an "increasingly challenging" outlook due to potential headwinds from sweeping tariffs denting the U.S. economy, the OECD flagged in a statement lowering its estimate for economic activity this year.

The Organisation for Economic Co-operation and Development slashed its projections for global gross domestic product growth for 2025 to 2.9% from an earlier estimate of 3.1%. Expected global GDP is also tipped to grow by 2.9% next year, down from a prior estimate of 3.0%.

Increases in trade barriers and elevated policy uncertainty all pose "significant risks" to growth in the coming months, the OECD said. Rising tariffs could fuel inflationary pressures, the group added, although it noted that this trend could be counterbalanced by softer commodity prices.

Still, risks to outlook remain "substantial", the OECD flagged.

"Key concerns include further escalations or sudden shifts in trade policies, more cautious behaviour from consumers and businesses, and continued repricing of risk in financial markets," the OECD said. An "early reversal" of the trade tensions could help boost economic growth and ease inflation, it argued.

The comments come as markets attempt to gauge the implications of U.S. President Donald Trump's punishing tariffs, which he has defended as moves to bolster government coffers, reshore lost manufacturing jobs and correct historic trade imbalances. The Trump administration is urging countries to provide their best offers for trade negotiations by Wednesday, according to Reuters.

With a self-imposed 90-day pause to Trump's sweeping reciprocal tariffs on a host of nations due to expire in July, the White House is racing to secure a bevy of bespoke agreements. Trump officials have previously said they are aiming to secure dozens of individual deals during the delay, which itself was partly fueled by financial markets largely rejecting the massive spike in duties first unveiled at a so-called "Liberation Day" event in early April.

Analysts have noted that, despite worries that the levies will spark inflation and weigh on growth, the U.S. economy in particular has been widely resilient. Labor market figures due out this week, as well as consumer price data next week, could provide further insight into the effect of the duties.

The OECD trimmed its outlook for U.S. growth to 1.6% this year, down from a prior projection of 2.2%.

U.S. tariffs were tipped to weigh on growth in China, the world's second-largest economy, but be partially offset by government subsidies related to consumer goods, the OECD said. Chinese factory activity shrank for the first time in eight months in May, a private-sector survey found on Tuesday.

Source: Investing.com