PARIS: Global growth is holding up better than expected as an artificial intelligence investment boom helps offset some of the shock from US tariff hikes, the OECD said on Tuesday, nudging up its outlook for some major economies.

The Paris-based organisation warned, however, that global growth was vulnerable to any new outbreak of trade tensions while investor optimism about AI could trigger a stock market correction if expectations are not met.

In its Economic Outlook, the Organisation for Economic Cooperation and Development forecast global growth would slow modestly from 3.2 percent in 2025 to 2.9 percent in 2026, leaving its forecasts untouched from its last estimates in September. It predicted a rebound to 3.1 percent in 2027.

OECD head Mathias Cormann said the trade shocks triggered by US President Donald Trump’s tariff hikes had so far proved relatively mild, but added their costs were likely to rise.

“The full effects of those higher tariffs since the start of the year will become clearer as firms run down the inventories that they built up,” he told a press conference.

UPGRADED GROWTH FORECASTS FOR 2025, BUT RISKS REMAIN

The US economy is forecast to grow 2 pecent in 2025, revised up from 1.8 percent in September, before slowing to 1.7 percent in 2026 - up from 1.5 percent predicted in September.

AI investment, fiscal support and expected Federal Reserve rate cuts are helping offset the drag from tariffs on imported goods, reduced immigration and federal job cuts, the OECD said.

However, it warned that the Trump administration had put US fiscal policy on an unsustainable trajectory with large budget deficits and rising debt that would require a “significant adjustment” in the coming years.

China’s growth is expected to hold steady at 5 percent in 2025, up from 4.9 percent in September, before slowing to 4.4 percnt in 2026 - unchanged from September - as fiscal support fades and new US tariffs on goods imported from China bite.

The euro zone’s 2025 growth forecast was revised up to 1.3 percent from 1.2 percent, supported by resilient labour markets and increased public spending in Germany. Growth is expected to moderate to 1.2 percent in 2026 - it was seen at 1 percent previously - as budget tightening in France and Italy weighs on the outlook.

Japan’s economy is projected to grow 1.3 percent in 2025, up from 1.1 percent, and buoyed by strong corporate earnings and investment, before slowing to 0.9 percent in 2026.

TRADE AND INFLATION OUTLOOK

Global trade growth is expected to moderate from 4.2 percent in 2025 to 2.3 percent in 2026 as the full effects of tariffs weigh on investment and consumption. Elevated trade policy uncertainty limits prospects for a recovery.

Inflation is projected to gradually return to central bank targets by mid-2027 in most major economies. In the US, inflation is expected to peak in mid-2026 due to tariff pass-through before easing. —Reuters