OECD tips slower economic growth amid tariff shakeup
Make us a preferred source
Make us a preferred source on Google
The news: The OECD is forecasting Australia’s GDP growth to reach 1.8% in 2025 and 2.2% in 2026, with unemployment to remain low and inflation within the target band. Its interim report expected 1.9% growth in 2025 and 1.8% in 2026.
There has been a downgrade in expectations on an international basis on the back of US President Donald Trump’s tariffs, with the OECD now expecting global growth to decline to 2.9% in 2025 and 2026. Earlier this year, it was tipping 3.1% in 2025 and 3% in 2026.
In its new economic outlook, the OECD anticipated that rate cuts from the Reserve Bank of Australia should continue in the coming quarters. And it said the fiscal priorities now needed to be long-term focused including demographic and climate change challenges and improving the efficiency of the tax system.
“A range of policy actions, including easing zoning restrictions, is needed to strengthen competition and productivity, as well as to raise housing investment to reverse the long-standing decline in housing affordability,” it said.
The OECD encouraged governments to “save any windfalls relative to current plans” noting that the widening of the fiscal deficit in 2024-25 and the further rise pencilled in for 2025-26 are justified on the basis of weak private demand but consolidation is required over the medium term.
The context: Australia is considered relatively shielded from the US trade war but there are indirect impacts that could have more significant effects.
“Australia has limited direct exposure to US tariff changes but is at risk from any marked slowdown in China, especially via its effect on commodity prices,” the OECD outlook said. It noted that policy uncertainty is likely to weigh on business investment and potentially lower prices for iron, ore, coal and natural gas.
The RBA is looking closely at the potential impacts on investment from uncertainty.
The OECD said that it was critical for nations to avoid further trade fragmentation and barriers, remain vigilant with monetary policy, restore fiscal discipline to build buffers for future shocks and find ways to boost investment.
What they said: "The international economy is full of uncertainty, unpredictability and volatility and that’s why the OECD has downgraded its forecasts for global growth," Treasurer Jim Chalmers said in a statement.
"We will see this play out in our own National Accounts as Australia deals with the impacts of repeated natural disasters at home, and the global economic headwinds facing countries around the world," he said.
"This is a stark reminder of the risks posed by tariffs and trade tensions, conflict and fragmentation ... With lower inflation, low unemployment, positive growth and falling interest rates the OECD is making it clear that the Australian economy is turning a corner as the rest of the world takes a turn for worse.
"The OECD expects growth in our economy to pick up, and they’ve upgraded their expectations for next year even as they’ve downgraded global growth."
The sources: OECD Economic Outlook 2025, Treasurer media statement
