In brief
New forecasts reveal a steep decline in growth for Canada and Mexico, while inflation concerns rise globally.
In a troubling forecast for North America, the OECD has warned that escalating trade tariffs implemented by the U.S. government will lead to a sharp decline in economic growth for Canada and Mexico. The organization predicts that the imposition of 25% tariffs on steel and aluminum, coupled with additional tariffs on various imports, has severely impacted both nations, which face the harshest penalties.The latest OECD projections indicate Canada's economy is expected to grow by a mere 0.7% this year and next, a significant drop from previous expectations of 2%. Meanwhile, Mexico’s economic outlook appears even bleaker, with forecasts suggesting a contraction of 1.3% this year followed by an additional decline of 0.6% next year.The implementation of these tariffs is not only anticipated to hit Canada and Mexico but is also expected to slow growth in the U.S., with revised estimates now indicating a 2.2% increase this year, down from 2.4%. The OECD highlights the overarching impact of increased trade barriers, which are believed to stifle investment and consumer spending in both countries.As a response to the tariffs, Canada and the EU have announced retaliatory measures. The OECD cautions that the geopolitical climate and uncertainty surrounding policy decisions are influential factors that could exacerbate the economic slowdown. Furthermore, risks associated with the fragmentation of the global economy remain a significant concern, with the potential for additional trade barriers likely to hinder worldwide growth, which the OECD predicts will drop from 3.2% in 2024 to 3.1% in 2025.In light of these developments, the OECD has also altered its inflation projections for major economies, now expecting an overall inflation rate of 3.8% this year, higher than prior estimates. Companies like Tesla have voiced concerns regarding the disproportionate consequences for U.S. exporters amid the ongoing trade dispute, highlighting the broader implications of these tariffs on international markets.For the UK, the OECD has adjusted its growth forecast downwards as well, indicating a reduction in expected economic expansion for 2025 and 2026. In contrast to these forecasts, the Bank of England remains more pessimistic regarding growth potential, further underscoring the costly implications of rising trade tensions globally.
