Tariffs uncertainty dampens global growth: US and Italy cut estimates

"The global outlook is becoming increasingly complex. Substantial increases in trade barriers, tighter financial conditions, weakening business and consumer confidence and increased political uncertainty will have significant negative effects on growth prospects, should they persist. Rising trade costs, particularly in countries that are introducing tariffs, will also push up inflation, although this effect will be partially offset by falling commodity prices'. This is according to the OECD's economic outlook, which cut its growth estimates for 2025 and 2026 to 2.9 per cent, down from the 3.1 per cent expected in March for this year and the 3 per cent forecast next year.

The OECD also cut its estimates for Italy, with growth prospects falling from 0.7% in 2024 to 0.6% in 2025 and 0.7% in 2026.

The new estimates, the report said, assume that the tariff levels in force in mid-May will remain unchanged, despite ongoing legal challenges. The slowdown will be concentrated mainly in the US, Canada and Mexico, while China and other economies are expected to see a smaller downward revision. "Global trade growth is set to slow significantly over the next two years after a marked advance in shipments ahead of planned tariff increases," the OECD experts note. Uncertainty is expected to continue to dampen business investment. "Risks have also increased significantly," the outlook continues. "There is a risk that protectionism and trade policy uncertainty will increase further and more trade barriers will be introduced. According to our simulations, further tariffs would further reduce global growth prospects and fuel inflation, further dampening global growth'. As for inflation, the new estimates are an annual increase in the G20 economies of 3.6 % in 2025 and 3.2 % in 2026. In March, +3.8% in 2025 and +3.2% in 2026 were expected. For the OECD economies expected +4.1% and +.3.2%.

"Risks to growth remain tilted to the downside due to uncertainty generated by global trade policy developments". This is stated in the OECD's new economic outlook in the chapter dedicated to Italy in which it is emphasised that "new trade restrictions or retaliatory measures, or more prolonged weakness in demand in the euro area, could lead to a sharper-than-expected contraction in exports". Uncertainty "could lead firms to reduce their investment and hiring plans more than expected, and households to limit consumption in order to increase precautionary savings". On the positive side, 'a larger share of the public investment projects financed through the National Recovery and Resilience Plan could be realised in 2025 and 2026 than expected'.

"New global trade restrictions are expected to lead to a slight contraction in export volumes in 2026, the first contraction since the global financial crisis (excluding the pandemic). Exports are expected to resume growth in 2026 due to increased investment and defence spending by other European countries." This is what OECD experts say in the chapter dedicated to Italy in the new economic outlook published today.