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US President Donald Trump announces plans by TSMC to invest in the US. (Reuters/Yonhap)

The Organisation for Economic Co-operation and Development (OECD) has drastically lowered its forecasts for economic growth in 2025 for major countries such as the US, Canada and Mexico, which stand to suffer a direct hit from the tariff war being waged by US President Donald Trump.

In the case of highly export-dependent South Korea, the OECD downgraded its projected GDP growth by 0.6 percentage points.

In its “OECD Economic Outlook, Interim Report” published on Monday, the OECD predicted that the global economy would experience 3.1% growth in 2025 compared with the year before. The rate was 0.2 percentage points lower than a previous prediction published in December 2024.

The OECD stated that corporations in major countries were likely to reduce investments and households were likely to cut back on expenditures amid the growing trade barriers associated with the protectionism wave spearheaded by the US, along with rising military and geopolitical tensions.

The decline in projected growth rates was especially large for Canada and Mexico, which are directly affected by Trump’s tariff war. The US government is set to impose 25% tariffs on both countries starting in April.

Canada’s projected growth rate was cut by 1.3 percentage points, while Mexico’s was slashed by 2.3 percentage points. Both countries are relatively dependent on the US for trade.

The OECD likewise predicted a slowdown for the US economy. Its projected 2025 growth rate for the US was 2.2%, down by 0.2 percentage points from the earlier figure. The organization also predicted the US would experience just 1.6% growth next year — suggesting that the US economy stands to suffer greatly from the trade war that its president has started.

The reorganization of the trade order also translated into a drastically lower growth rate projection for South Korea, which has an export-dependent economy. The OECD predicted a growth rate of 1.5%, down by 0.6 percentage points from the previous figure of 2.1%. The rate was also similar to the projections issued in February by the Korea Development Institute and Bank of Korea, which predicted rates of 1.6% and 1.5%, respectively.

The OECD’s 24-page report did not include any mention of South Korean President Yoon Suk-yeol’s insurrection attempt on Dec. 3 of last year.

Meanwhile, the projected growth rate for China rose by 0.1 percentage point from 4.7% to 4.8%, as the country is not directly impacted by the shock to US-centered supply chains. The European region was predicted to experience growth of 1.0%, a reduction of 0.3 percentage points.

In its report, the OECD only considered the effects of the increased US tariffs on items from China, Canada, and Mexico and on steel and aluminum imports. The OECD predicted increases in trade barriers would lead to declining economic activity and higher prices.

Alarm bells ringing about the state of the global economy are not limited to falling growth rates. Concerns were also raised that consumer prices would rise as the high tariff rates drive up supply costs.

“[I]ncreased trade costs are expected to feed through gradually to final goods prices, putting additional upward pressure on inflation in many countries,” the report predicted.

While economic slowdowns typically lead to falling prices, the report warned of a potential double whammy of an economic slowdown and high prices owing to the costs associated with trade barriers.

Based on this assessment, the OECD substantially raised its projected 2025 rates of increase in consumer prices for countries that are involved in the tariff war, including the US (with the projected rate rising from 2.1% to 2.8%), Canada (2.0%→3.1%), and Mexico (3.3%→4.4%).

South Korea was mentioned as one of the countries where “goods inflation has recently turned up,” with “rising food prices a key factor.” The inflation rate of South Korean consumer products went from 1.9% in December of last year to 2.2% in January and 2% in February, exhibiting two consecutive months in the 2% range. 

The OECD report said, "Central banks should remain vigilant given heightened uncertainty and the potential for higher trade costs to push up wage and price pressures." 

The assertion is that instead of rushing to implement monetary policies like lowering interest rates, central banks should continue to closely monitor consumer prices and respond accordingly. 

By Ahn Tae-ho, staff reporter

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