The global economy is bracing for a significant slowdown in 2025, and Canada is expected to bear the brunt of it, according to a sobering forecast released Tuesday by the Organisation for Economic Co-operation and Development (OECD).
Citing rising trade tensions, tighter financial conditions, weakening confidence, and mounting policy uncertainty, the OECD slashed its global growth forecast to 2.9% for both 2025 and 2026 — down from 3.3% in 2024. The most severe slowdown, it warned, will be felt across North America, with Canada, the U.S., and Mexico leading the decline.
While Canada saw a slight upgrade from the OECD’s March forecast, growth is now projected at just 1.0% in 2025 and 1.1% in 2026, significantly lower than the 1.5% growth posted in 2024.
“Since February 2025, trade tensions and increased tariffs on imports to the United States heavily weigh on Canada’s external perspectives,” the report stated, pointing to Canada’s deep trade ties with its southern neighbour.
Much of the pressure comes from President Donald Trump’s renewed protectionist trade policies, which have slapped higher tariffs on Canadian exports. The OECD expects Canadian exports to the U.S. to decline sharply, triggering a chain reaction: household consumption will cool, business investment will retreat, and confidence will erode.
Canada’s housing market, a critical driver of economic activity, is forecast to remain largely flat in the first half of 2025.
In response to the cooling economy, the OECD expects the Bank of Canada to cut its policy rate by 50 basis points, bringing it to 2.25% by year’s end. However, the economic benefits of lower interest rates won’t likely materialize until 2026. Policymakers will also have to navigate opposing inflationary forces — higher import prices from tariffs pushing inflation up, and weak demand pushing it down.
In the United States, the economic outlook is even bleaker, with growth expected to tumble from 2.8% in 2024 to 1.6% in 2025, and just 1.5% in 2026. The OECD warns U.S. inflation will approach 4% due to import costs, likely delaying any Federal Reserve interest rate cuts until 2026.
“The economic pain will be widespread,” said OECD chief economist Álvaro Pereira, “with lower trade, weaker incomes, and slower job growth across much of the world.” He stressed that easing global trade tensions must be the top policy priority to reverse the downturn.
While Canada’s growth isn’t falling as sharply as the U.S., the OECD’s outlook makes clear that the ripple effects of U.S. protectionism and global uncertainty will leave Canadian households and businesses navigating a challenging year ahead.