OECD March Economic Outlook flags slowdown in Australian economic growth

Australian economic growth will likely slow across 2026, the OECD warns, as US President Donald Trump’s tariff agenda threatens to hit growth around the world and rekindle inflation.

GDP growth in Australia was 1.1 per cent in 2024, the March report said, and is expected to rise to 1.9 per cent in 2025 before falling to 1.8 per cent in 2026.

The 2026 rate represents a 0.7 per cent decline on the forecasted growth rate from the OECD’s December report.

“Growth in both Korea and Australia is projected to hold up but to be weaker than previously expected,” the report states.

Across most major G20 economies, 2026 growth rates are now expected to be lower than the growth rates forecast in the December outlook.

Canada’s GDP is expected to grow at 0.7 per cent, a 1.3 per cent fall from the December projection, while Germany is forecast to grow at 1.1 per cent, a 0.1 per cent dip.

The outlook, which predicts trends and growth rates across the world’s leading economies, singled out President Trump’s disruptions to global trade as a significant risk.

“Significant changes have occurred in trade policies that if sustained would hit global growth and raise inflation,” the report’s summary states.

Global growth is now expected to moderate from 3.2 per cent in 2024 to 3.1 per cent in 2025 and 3 per cent in 2026, with “higher trade barriers in several G20 economies and increased geopolitical and policy uncertainty weighing on investment and household spending”.

“Inflation is projected to be higher than previously expected, although still moderating as economic growth softens,” the report concludes.

“Headline inflation is projected to fall from 3.8 per cent in 2025 to 3.2 per cent in 2026 in the G20 economies. Core inflation is now projected to remain above central bank targets in many countries in 2026, including the United States.

“These projections are based on an assumption that bilateral tariffs between Canada and the United States and between Mexico and the United States are raised by an additional 25 percentage points on almost all merchandise imports from April.

“Activity would be stronger and inflation lower in all three economies if these tariff increases were lower or confined to a smaller range of goods, but global growth would still be weaker than previously expected.”

Headline inflation in Australia is also expected to moderate from 2025 to 2026, the OECD said, with inflation forecast to be 0.4 per cent lower from earlier predictions to hit 2.2 per cent in 2026.

“Provided inflation expectations remain well anchored and trade tensions do not intensify further, policy rate reductions can continue in economies in which inflation is projected to moderate,” the report states.

“In the euro area, policy interest rates are projected to ease to 2 per cent by the latter half of 2025, with gradual easing also occurring over the next two years in Australia and the United Kingdom.”

In February, the Reserve Bank of Australia cut its benchmark cash rate by 25 basis points from 4.35 per cent to 4.1 per cent, citing a substantial fall in inflation from the 2022 peak for the move.

But RBA Governor Michele Bullock warned repeatedly that “upside risks” remained and the Board would lift rates again if they spotted any reversal in inflation trends.