The Organization for Economic Co-operation and Development (OECD) has cut its growth projection for the eurozone in 2025 to 1.0%, down from 1.3% estimated in December. Weak investment and geopolitical risks continue to impact the economic outlook. The global growth forecast has also dropped to 3.1% as trade disruptions and inflation concerns hurt worldwide confidence.
Fragile Economic Recovery Across Europe
Europe’s economic recovery remains fragile, according to the OECD’s March 2025 Economic Outlook. Persistent inflation and trade uncertainty are slowing growth across the region. The report highlights how weakening global momentum and economic fragmentation pose serious risks to future growth.
Significant Revisions for Eurozone Growth, Especially Germany
The OECD now expects the eurozone to grow by just 1.0% in 2025, reflecting a 0.3 percentage point decrease from its December prediction. Germany faces the most substantial downgrade, with its GDP growth forecast lowered from 0.7% to 0.4%.
“Uncertainty keeps growth subdued,” the OECD said, explaining that higher borrowing costs and weak external demand are harming recovery prospects. The 2026 outlook is also reduced to 1.2%, showing the ongoing struggles the region is dealing with.
France and Italy have experienced slight forecast reductions, with growth expected at 0.8% and 0.7% respectively. Spain remains an exception, with its growth projection adjusted upward to 2.6% in 2025 and 2.2% in 2026.
Trade Barriers and Global Instability Threaten Growth
The OECD warns that rising trade restrictions and geopolitical tensions could further harm global growth. The organization emphasizes that broader trade barriers could cut global GDP by 0.3% over the next three years.
“Further fragmentation of the global economy remains a significant threat,” the report stated, noting that ongoing trade restrictions could increase global inflation by 0.4 percentage points annually.
North America Faces Trade Disruptions
The OECD has also revised its growth predictions for North America. This is mainly due to economic fallout from new US tariffs introduced by Donald Trump’s administration. Mexico’s GDP forecast for 2025 has been reduced by 2.5 percentage points, now expected to shrink by 1.3%. Canada’s projection is also down by 1.3 percentage points, leaving it at a moderate 0.7% growth rate.
Meanwhile, the US economy is expected to grow by 2.2% in 2025, marking a 0.2 percentage point downgrade. The OECD highlighted that Canada and Mexico will feel the most severe negative effects due to their close trade ties with the US.
Inflation Continues to Be a Challenge
Although price growth has eased since its 2022 peak, inflation remains a concern. The OECD expects eurozone inflation to reach 2.2% in 2025 and decrease to 2.0% in 2026. Services inflation stays high due to tight labor markets, while goods inflation shows signs of increasing from low levels.
The UK is likely to face prolonged inflationary pressures, averaging 2.7% in 2025 before easing to 2.3% in 2026. In the US, core inflation is predicted to stay above the Federal Reserve’s target, reaching 2.8% in 2025.
Central Banks Remain Cautious
Despite slowing inflation, major central banks are expected to reduce interest rates slowly. The OECD predicts the European Central Bank (ECB) will lower its key policy rate to 2% by late 2025. The Bank of England is also expected to proceed cautiously with rate cuts.
The US Federal Reserve will likely keep rates steady until well into 2026. Meanwhile, Japan is expected to continue its gradual move away from ultra-loose monetary policies.
OECD Calls for Stronger Global Cooperation
The OECD urges countries to enhance global cooperation to prevent further economic fragmentation. “Countries must work together within the global trade system,” the report stated, encouraging efforts to secure supply chains and support economic growth worldwide.
Structural reforms, especially in Europe, will be essential for boosting productivity. The OECD recommends investments in digital infrastructure and simplifying regulations. It also suggests that faster adoption of artificial intelligence could significantly boost productivity.
As the global economy faces a tough road ahead, the OECD warns that trade tensions, inflation, and economic fragmentation will continue to be major challenges. Coordinated policy actions are crucial to support recovery and ensure stable growth.