OECD forecasts slower Chinese economic growth due to trade war

The Organisation for Economic Co-operation and Development (OECD) announced that the Chinese economy will grow by 4.3% next year, lowering its previous forecast by 0.1 percentage points in light of ongoing global trade conflicts.

The Paris-based group stated that “significant trade barriers” and “diminished confidence and increased policy uncertainty” are exerting downward pressure on global economic growth rates this year and next. It noted that the global slowdown trend will be most pronounced in China, Canada, Mexico, and the US.

The 38-member OECD’s outlook report this week follows US President Donald Trump’s imposition of double-digit tariff increases on imports from many countries this year. Most of the targeted countries are in Asia, with the largest increases aimed at China.

The OECD’s outlook report stated that China’s exports “will be constrained by newly implemented tariffs,” while imports will fall as production becomes increasingly localized. The report said, “Tariffs will disproportionately affect private companies, including foreign firms that are major exporters.” The US absorbed 13.5% of China’s direct merchandise exports last year.

The OECD added that China’s consumption is negatively impacted by “still-high precautionary savings due to the trauma created by the pandemic and the correction in the real estate sector,” despite support from this year’s durable goods trade-in program.

The report noted that China’s infrastructure investment is “stable,” while consumer price inflation is “low” and producer prices are trending downwards. The OECD did not change its economic growth forecast for China for this year, keeping it at 4.7%. Authorities in Beijing are targeting economic growth of “around 5%.”

Trump’s highest tariff increases, including those targeting China, have been suspended pending the conclusion of US negotiations with individual countries. However, other tariff increases, which the US leader said were implemented to address unfairness in America’s foreign trade balance, have already taken effect.

The OECD report warned that further “fragmentation” of trade, including new tariff increases and retaliatory measures, could exacerbate the growth slowdown and disrupt cross-border supply chains in large parts of the world.

OECD Secretary-General Mathias Cormann said, “The global economy has entered a more uncertain path from a period of resilient growth and falling inflation.” Inflation is expected to persist, especially where “trade costs are significantly high” or labor markets are tight.

The report projects the US economy will grow by 1.6% this year and 1.5% next year. These figures are below the 2.4% forecast for this year made in December and the 2.1% projection for 2026. According to OECD estimates, the global economy will grow by 2.9% this year and next. This is below the 3.3% forecast for both years made in December.

Song Seng Wun, an economic advisor at Singapore-based financial services company CGS, said, “On the surface, the OECD’s forecast is a reasonable one that takes into account the imposition of tariffs and retaliatory measures that could affect business confidence. This situation can affect your employment and investment decisions.”

The OECD projected that India will be the only major economy in the G20 group to record growth above 6% this year and next. Indonesia, one of the G20’s top-performing countries, is expected to grow by 4.7% this year and 4.8% next year.