OECD Cautions Governments: High Debt Levels Threaten Economic Revival Amidst Trade War

Governments worldwide, particularly those with high debt levels, are facing a critical challenge in reviving their economies amidst the ongoing trade war, according to a new report from the Organization for Economic Co-operation and Development (OECD). 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. This downward revision reflects the widespread negative impact of the trade conflict.
The report highlights that the “weakened economic prospects will be felt around the world, with almost no exception,” leading to “lower growth and less trade [that] will hit incomes and slow job growth.” The United States, Canada, Mexico, and China are identified as key drivers of this global economic slowdown. The OECD’s analysis underscores the pervasive nature of the trade war’s repercussions, impacting not only growth but also employment and income.
A significant concern raised by the OECD is the inflationary pressure created by protectionism, which will lead to higher costs for goods and services. This poses a particular threat to developing nations already burdened by substantial debt. The report explicitly warns that “high debt levels and tighter financial conditions pose particular risks for developing countries, many of which have large debt refinancing needs in the near future.”
In response to these challenges, the OECD advises central banks to remain vigilant against inflation. The report also offers a crucial suggestion for governments: to increase investments to stimulate business development and improve public finances. However, it acknowledges that high debt levels can hinder the ability of governments to finance these essential projects, creating a difficult balancing act in the face of economic headwinds.