The Organization for Economic Co-operation and Development ( OECD ) has cut global growth forecasts sharply following US President Donald Trump’s new tariffs, prompting warnings that investors must take action to reflect the new economic environment.

In its full economic outlook released on Tuesday, the OECD projects global growth of just 2.9% for both 2025 and 2026 – its lowest forecast since the 2020 pandemic shock.

Nearly every G20 economy sees a downgrade. The OECD singles out the United States, where growth is expected to fall from 2.8% in 2024 to 1.6% in 2025 and 1.5% in 2026.  It attributes much of the slowdown to tariffs Trump announced in April. The average US effective tariff rate now exceeds 15%, up from 2.5%, making it the highest since the 1940s.

“Weakened economic prospects will be felt around the world, with almost no exception,” the OECD says.

The organization also notes that the inflationary impact of tariffs is significant. The rise in costs is expected to keep the Federal Reserve from cutting interest rates this year, despite weaker growth. Financial markets had priced in easing, but those expectations are now being reconsidered.

Fundamental shift

“This downgrade highlights a fundamental shift in conditions,” says Nigel Green, CEO of global financial advisory deVere Group. “Investors have been relying on assumptions that no longer match reality. Growth is slowing, trade costs are rising, and central banks are more constrained than many had hoped. Allocations need to reflect that immediately.

“These tariffs are directly affecting business decisions. Companies are halting investment, adjusting pricing, and shifting production. These are measurable actions, not projections. We already see it in trade data and corporate guidance.”

“Investors who have been waiting for rate cuts are now facing a different backdrop. Policy support is limited, but cost pressures remain elevated. That narrows the range of outcomes and calls for far more precise portfolio positioning,” Green adds.

Beyond the US, the OECD downgrades growth in China, India, France, Japan, South Africa, and the United Kingdom.

It reports weaker trade volumes, softer investment flows, and reduced business confidence across advanced and emerging markets.

“This is a broad-based loss of momentum. The effects of the tariffs are moving through the global system. The shift is visible across regions and sectors, and portfolios must reflect that shift,” the deVere Group CEO says. “We are focusing on resilience and consistency. That includes select real asset strategies, stronger regional balance sheets, and businesses with pricing power that is not tied to external demand.”

While the OECD calls for easing trade restrictions to restore investments, it also signals that no near-term resolution is likely. Tariffs now form a core part of US economic strategy, and market participants should not expect those policies to unwind quickly.

The OECD’s latest forecast points to a slower, more complex environment for capital allocation. For investors, that means reassessing exposures and acting before further repricing occurs.