Economic outlook: Global growth to remain resilient in 2025 and 2026 despite significant risks – London Business News | Londonlovesbusiness.com

The global economy is projected to remain resilient despite significant challenges, according to the OECD’s latest Economic Outlook.

The Outlook projects global GDP growth of 3.3% in 2025, up from 3.2% in 2024, and 3.3% in 2026.

Inflation in the OECD is expected to ease further, from 5.4% in 2024 to 3.8% in 2025 and 3.0% in 2026, supported by the still restrictive stance of monetary policy in most countries.

Headline inflation has already returned to central bank targets in nearly half of the advanced economies and close to 60% of emerging market economies.

Labour markets have gradually eased, yet unemployment remains low by historical standards. Strong nominal wage gains and continued disinflation have bolstered real household incomes.

However, private consumption growth remains subdued in most countries, reflecting weak consumer confidence. Global trade volumes are recovering, with a projected increase of 3.6% in 2024.

Growth prospects vary significantly across regions. GDP growth in the United States is projected to be 2.8% in 2025, before slowing to 2.4% in 2026. In the euro area, the recovery in real household incomes, tight labour markets and reductions in policy interest rates continue to drive growth.

Euro area GDP growth is projected at 1.3% in 2025 and 1.5% in 2026. Growth in Japan is projected to expand by 1.5% in 2025 but then decline to 0.6% in 2026. China is expected to continue to slow, with GDP growth of 4.7% in 2025 and 4.4% in 2026.

“The global economy has proved resilient. Inflation has declined further towards central bank targets, while growth has remained stable,” OECD Secretary-General Mathias Cormann said.

“Significant challenges remain. Geopolitical tensions pose short-term risks, public debt ratios are high and medium-term growth prospects are too weak. Policy action needs to safeguard macroeconomic stability – through monetary policy easing that is carefully calibrated to ensure inflationary pressures are durably contained and through fiscal policy that rebuilds fiscal space to preserve room to meet future spending pressures.

“To boost productivity and the foundations for growth, we must enhance education and skills development efforts, undo overly stringent constraints to business investment and successfully tackle the structural increase in labour shortages.”

The Outlook highlights persistent uncertainty. An intensification of the ongoing conflicts in the Middle East could disrupt energy markets and hit confidence and growth. Rising trade tensions might risk hampering trade growth. Adverse surprises related to growth prospects, or the path of disinflation could trigger disruptive corrections in financial markets.

Growth could also surprise on the upside. Improvements in consumer confidence, for example if purchasing power recovers quicker than anticipated, could boost spending. An early resolution to major geopolitical conflicts could also improve sentiment, and lower energy prices.

To navigate these challenges, the Outlook emphasises the need to durably reduce inflation, address rising fiscal pressures and tackle labour shortages to alleviate structural impediments to higher trend growth.

Central bank policy rate reductions should continue in advanced economies except Japan. The timing and extent of reductions should be carefully judged and remain data-dependent, ensuring that underlying inflationary pressures are fully contained.

Decisive fiscal action is needed to ensure the sustainability of public finances, and provide the necessary resources for governments to tackle future shocks and future spending pressures. Stronger near-term efforts to contain spending growth, optimise revenues and enhance credible medium-term adjustment paths need to be the cornerstone of efforts to stabilise debt burdens.

Ambitious structural reforms are necessary to reinvigorate weak potential output growth. The policy mix needs to include efforts to enhance education and skills development and reduce constraints in product and labour markets that impede opportunities for investment and labour mobility.

“Structural reforms are essential to lay the foundations for stronger, sustainable growth,” OECD Chief Economist Alvaro Pereira said.

“Labour shortages are already a challenge for firms in many countries, and population ageing will only exacerbate this. Policy action needs to ensure that skills evolve with demands on labour markets and that labour force participation, especially of older workers and women, rises.”