OECD: Trade War Threatens Public Finances, Urges Sustainable Debt Paths

The ongoing trade war is threatening public finances worldwide, and the Organization for Economic Co-operation and Development (OECD) is urging countries to ensure their debt remains on a sustainable path. The OECD has significantly lowered its global economic growth projections, now anticipating a decline from 3.3% in 2024 to 2.9% in both 2025 and 2026, a stark reminder of the economic pressures facing governments.
The OECD’s latest outlook report states unequivocally that “weakened economic prospects will be felt around the world, with almost no exception.” It predicts that “lower growth and less trade will hit incomes and slow job growth,” underscoring the broad negative impact on national economies. The United States, Canada, Mexico, and China are specifically identified as major contributors to this anticipated global economic decline.
A key concern raised by the OECD is that “protectionism” will put pressure on inflation, leading to higher costs for goods and services. This inflationary pressure, combined with already high debt levels, poses a severe risk for developing nations. The report explicitly warns that “countries should ensure that public debt is, indeed, on a sustainable path” to navigate these turbulent economic waters.
In response to these fiscal challenges, the OECD advises central banks to “remain vigilant” regarding inflation. Crucially, it also advocates for increased investment to revive economies and improve public finances. However, the report acknowledges the difficulty for governments already burdened by debt to finance such crucial initiatives, highlighting the urgent need for sound fiscal management and proactive debt strategies.