Global Economic Outlook in a Time of War

Source : OECD - Perpectives économiques de l'OCDE, juin 2025

The economic outlook is proving to be more pessimistic than initially expected. Significant trade barriers, tightening financial conditions, weakening confidence, and increased policy uncertainty are contributing to the deterioration of the global economic situation. These factors are likely to hinder growth - Global growth is projected to slow down, decreasing from 3.3% in 2024 to 2.9% in both 2025 and 2026.

This forecast comes alongside the realization that geopolitical developments pose an even greater threat to the global economy, particularly due to the risk of conflict that could disrupt the global energy supply. This slowdown is expected to be most pronounced in the United States, Canada, Mexico, and China, while other economies are anticipated to face more limited declines. Despite these challenges, China remains in a relatively strong position. The resilience and strategic positioning of the BRICS countries are evident in this context.

In the United States, GDP growth is projected to decline from 2.8% in 2024 to 1.6% in 2025 and 1.5% in 2026. In the Eurozone, growth is expected to increase slightly, from 0.8% in 2024 to 1.0% in 2025 and 1.2% in 2026. In China, growth is anticipated to moderate from 5.0% in 2024 to 4.7% in 2025 and 4.3% in 2026.

Inflationary pressures have resurfaced in several economies. Rising trade costs in countries that are increasing their tariffs are likely to push inflation higher, though this effect will be partially offset by declining commodity prices. In the Group of Twenty (G20) economies overall, annual headline inflation is expected to decrease from 6.2% in 2024 to 3.6% in 2025 and 3.2% in 2026. “The global economy has shifted from a period of resilient growth and declining inflation to a more uncertain path,” stated OECD Secretary-General Mathias Cormann. “Our latest Economic Outlook shows that ongoing policy uncertainty is weighing on trade and investment, weakening consumer and business confidence, and worsening growth prospects.

Governments must collaborate through dialogue to address potential challenges to the global trading system in a positive and constructive manner—keeping markets open and preserving the economic benefits of rules-based global trade, which are essential for competition, innovation, productivity, efficiency, and ultimately, growth.”

The Outlook emphasizes several risks. For instance, the fear that increased trade fragmentation, particularly due to further tariff increases and retaliatory measures, could exacerbate the slowdown in growth and disrupt international supply chains. Inflation may prove to be more persistent than anticipated, especially in economies experiencing significantly higher trade costs or labor market tensions, potentially leading to monetary tightening and a more negative growth outlook. Geopolitical tensions also threaten the already vulnerable global economy.

The renewed conflict in the Middle East between Israel and Iran is alarming the international community and raising concerns about economic forecasts that depend on oil supplies. Rising debt service costs could increase fiscal pressures globally, while tighter financial conditions may pose additional risks for low-income countries. Although equity markets have recovered from a recent slump, they remain volatile. On the other hand, removing new trade barriers could enhance global growth prospects and reduce inflation.

A peaceful resolution to Russia's aggressive war against Ukraine and ongoing conflicts in the Middle East could also restore confidence and investment incentives - but we are far from that. Central banks should remain vigilant, given the heightened uncertainty and the risk that initial increases in trade costs could amplify wage and price pressures more broadly. If inflation expectations remain stable and trade tensions do not escalate further, policy rates should continue to be lowered in economies where inflation is expected to moderate and aggregate demand growth is sluggish.

Confronted with multiple spending pressures, governments must ensure long-term debt sustainability and maintain their capacity to respond to future shocks. It will be crucial to intensify efforts to control and reallocate spending while optimizing revenues, following credible medium-term adjustment paths that are tailored to each country's specific circumstances. This approach will help keep the debt burden manageable and preserve the fiscal space needed to address long-term spending challenges—especially for a country like France, whose social security system requires significant budgets.

The combination of pressures on trade, geopolitical uncertainty, and modest growth prospects underscores the need for ambitious structural reforms to enhance living standards and boost economic competitiveness. A strong focus should be placed on measures to increase business investment, innovation, and productivity. However, the emphasis should not just be on any innovation, but specifically on future-oriented innovations in promising markets such as green energy and energy-efficient data management. These are pressing needs that require development in the near future.

The risks associated with terrorism also highlight the importance of innovation in population risk management, resource optimization, and the provision of water and food. According to the OECD, "Investment has declined since the global financial crisis, which has slowed growth. While the increase in investment in the digital and knowledge-based economy is a step in the right direction, public investment continues to stagnate, and housing investment is failing to meet demand.

Implementing bold reform programs to stimulate investment can be a major lever for strengthening the global economy in the 21st century. However, strategically, the Western world is gradually losing its international influence. The failure to end the Russian invasion is proof of this, reinforced by the lack of decisive action in the face of the war in Gaza, and now in the face of the renewed conflict in Iran.

Each of these conflicts illustrates the evolving diplomatic fragility of the Western world and the weakening of international law, which has served as the foundation of world peace in recent decades. Although this law may be called into question, it has so far represented the basis of a balance that has now been largely ignored.

The consequences of this erosion are inevitable and difficult to predict. In this context, energy independence has never been more urgent, especially as the world faces conflicts with destabilizing consequences.