Tue Dec 02 19:40:37 UTC 2025: OECD: AI Boom Offsets Tariff Shocks, but Warns of Unsustainable US Fiscal Policy Under Trump

Paris – Global growth is proving more resilient than anticipated, buoyed by an artificial intelligence (AI) investment boom that is partially mitigating the impact of US tariff hikes, the Organisation for Economic Co-operation and Development (OECD) reported Tuesday.

However, the OECD cautioned that the global economy remains vulnerable to renewed trade tensions and that over-optimism surrounding AI could lead to a stock market correction. While forecasting a modest slowing of global growth from 3.2% in 2025 to 2.9% in 2026, the organization warned that US fiscal policy under the Trump administration is on an “unsustainable trajectory” due to large budget deficits and rising debt.

OECD head Mathias Cormann acknowledged the relatively mild impact of President Trump’s tariffs thus far but warned that the full effects are yet to be felt. “The full effects of those higher tariffs since the start of the year will become clearer as firms run down the inventories that they built up,” he said.

The US economy is projected to grow by 2% in 2025 before slowing to 1.7% in 2026. The OECD credits AI investment, fiscal support, and expected Federal Reserve rate cuts for offsetting the negative effects of tariffs, reduced immigration, and federal job cuts. However, the agency stressed the need for a “significant adjustment” to US fiscal policy in the coming years.

China’s growth is expected to remain steady at 5% in 2025 before moderating to 4.4% in 2026 as fiscal stimulus wanes and new US tariffs take effect. The Eurozone’s growth forecast was revised upward to 1.3% for 2025, driven by strong labor markets and increased public spending in Germany.

The OECD anticipates a moderation in global trade growth from 4.2% in 2025 to 2.3% in 2026, with inflation gradually returning to central bank targets by mid-2027 in most major economies. The US Federal Reserve is expected to implement slight rate cuts by the end of 2026, barring unforeseen inflationary pressures arising from tariffs.

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