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The global economy has proved resilient this year but underlying fragilities remain, according to the OECD’s latest Economic Outlook.

The Outlook projects global growth slowing from 3.2% in 2025 to 2.9% in 2026, before picking up to 3.1% in 2027.

GDP growth in the United States is projected to decline from 2.0% in 2025 to 1.7% in 2026 and 1.9% in 2027. In the euro area, growth is expected to be 1.3% in 2025, 1.2% in 2026 and 1.4% in 2027. China’s growth is projected to ease from 5.0% in 2025 to 4.4% in 2026 and 4.3% in 2027.

Annual headline inflation in the G20 economies is expected to moderate to 2.9% and 2.5% in 2026 and 2027 respectively, from 3.4% this year. By mid-2027, inflation is projected to be back to target in most major economies.

“Given the fragilities in the global economy, countries must reinforce their efforts to engage in constructive dialogue that ensures a lasting resolution to trade tensions and a reduction in policy uncertainty,” OECD Secretary-General Mathias Cormann said. “Fiscal discipline is important to address increasing risks that arise from high public debt and higher spending needs due to defence requirements and population ageing. Structural reforms that reduce red tape, simplify regulations and lower entry barriers in service sectors are key to enhance competition, innovation and business dynamism, and ultimately durably strengthen living standards.”

Supportive macroeconomic policies, improved financial conditions fuelled by optimism about the potential impact of new technologies and rising AI-enabling investment have helped underpin demand, cushioning the headwinds from elevated policy uncertainty and rising barriers to trade.

The full effects of higher tariffs have yet to be felt, but are becoming increasingly visible in spending choices, business costs and consumer prices, especially in the United States. Global trade growth moderated in the second quarter. There are also signs of weakening labour demand, as job openings have fallen back to their pre-pandemic levels of 2019.

The Outlook highlights a range of risks, including further increases in trade barriers. Weaker-than-expected growth, lower-than-expected returns from net AI investment, or upside inflation surprises could all trigger widespread risk repricing in financial markets, given stretched asset valuations and optimism about corporate earnings.

Central banks should remain vigilant and react promptly to shifts in the balance of risks to price stability. Provided inflation expectations remain well anchored, policy rate reductions should continue in economies in which inflation is projected to moderate or remain subdued.

The high price volatility of crypto-assets and the growing interconnectedness of non-bank financial institutions with the traditional financial system also raise financial stability risks.

Fiscal discipline is needed to ensure longer-term debt sustainability and maintain the ability to react to future shocks. Stronger efforts to contain and reallocate spending, improve public sector efficiency and optimise revenues will be important for debt burdens to remain manageable. Spending and tax choices should focus on the need to strengthen sustainable economic growth while targeting support towards those in need.