The Organisation for Economic Co-operation and Development (OECD) has revised its eurozone GDP growth forecast to 1% for 2025, down from the 1.3% predicted in December. This revision is attributed to weak investment and escalating geopolitical risks. Additionally, global growth projections have been reduced to 3.1%, as disruptions in trade have dampened overall sentiment.
The OECD’s report, released in March 2025, flags the eurozone’s recovery as weaker than initially expected, influenced by ongoing trade disruptions and persistent inflation. The Paris-based institution has adjusted its forecast, with the eurozone’s GDP now expected to expand by only 1% in 2025, reflecting slowing investment and muted consumer confidence amid mounting geopolitical and trade risks.
The international outlook is equally grim, with global growth expectations cut by 0.2 percentage points to 3.1%. The report issues warnings on a fragile recovery for Europe and significant risks arising from economic fragmentation, attributing these concerns to rising trade barriers and geopolitical tensions.
The euro area’s growth has been specifically downgraded to 1% in 2025, a 0.3 percentage point drop from December’s forecast. Germany, the region’s largest economy, is expected to grow just 0.4% in 2025, compared to the previous estimate of 0.7%. The OECD attributes subdued growth across the euro area to heightened uncertainty. Looking ahead, eurozone growth is again downwardly revised for 2026 to 1.2%.
Factors contributing to the subdued growth predictions include weak external demand and elevated borrowing costs. Notably, Spain remains a relatively bright spot, with growth forecast at 2.6% for 2025 and expected to decrease slightly to 2.2% for 2026.
The OECD highlights the risks posed by escalating trade barriers and geopolitical uncertainty, emphasizing that further fragmentation of the global economy could significantly impact growth and exacerbate inflation. Trade restrictions could lead to a 0.3% decrease in global GDP and a 0.4% annual rise in inflation over the next three years.
North American economies, particularly Mexico and Canada, are expected to be disproportionately affected by newly imposed US trade tariffs. The report also forecasts the US economy’s GDP growth to dip slightly to 2.2% in 2025, down from the previous estimate of 2.4%.
Inflation remains a challenge, with the OECD expecting it to remain elevated, particularly in services due to tight labor markets and a pick-up in goods inflation from historically low levels. The UK is expected to see inflation stay higher for longer, averaging 2.7% this year, while in the US, inflation is projected to remain above central bank targets, with an anticipated rate of 2.8% in 2025.
Monetary policy adjustments are expected to be cautious, with the European Central Bank and the Bank of England foreseeing measured rate reductions, and the US Federal Reserve’s rates likely to remain unchanged until well into 2026.
The OECD calls for increased international cooperation to prevent further economic fragmentation and suggests that structural reforms could enhance long-term growth prospects, particularly in Europe. These reforms include measures to boost productivity, reduce regulatory hurdles, and invest in digital infrastructure. The report also recognizes the potential productivity benefits from a faster adoption of artificial intelligence technologies.
As both Europe and the global economy face increasing uncertainty, the OECD points to significant risks lingering in the form of rising trade tensions, policy unpredictability, and persistent inflation. Despite the economy’s resilience so far, the report underlines the necessary focus on mitigating these risks.
Source: https://www.euronews.com/business/2025/03/17/oecd-trims-eurozone-growth-outlook-as-global-trade-tensions-bite
