OECD Economic outlook, Volume 2025 Issue 2 : Resilient Growth but with Increasing Fragilities. No.118

Title page 1

Contents 4

Acknowledgements 8

Editorial: Resilient growth but with increasing fragilities 9

1. General assessment of the macroeconomic situation 11

Introduction 11

Recent Developments 13

Projections 28

Risks 33

Policies 45

References 61

Annex 1.A. Policy and other assumptions underlying the projections 65

2. Time for a Regulatory Reset? 66

Summary 66

The productivity slowdown has been underpinned by a decline in economic dynamism 67

The case for a regulatory reset 68

Executing the regulatory reset: a recipe to restore productivity and dynamism prospects 78

References 95

3. Developments in individual OECD and selected non-member economies 103

Argentina 104

Australia 107

Austria 110

Belgium 113

Brazil 116

Bulgaria 120

Canada 123

Chile 127

China 130

Colombia 134

Costa Rica 137

Croatia 140

Czechia 143

Denmark 146

Estonia 149

Euro area 152

Finland 156

France 159

Germany 163

Greece 167

Hungary 170

Iceland 173

India 176

Indonesia 180

Ireland 184

Israel 187

Italy 190

Japan 194

Korea 198

Latvia 201

Lithuania 204

Luxembourg 207

Malaysia 210

Mexico 213

Morocco 216

Netherlands 219

New Zealand 222

Norway 225

Peru 228

Philippines 231

Poland 234

Portugal 237

Romania 240

Slovak Republic 243

Slovenia 246

South Africa 249

Spain 252

Sweden 255

Switzerland 258

Thailand 261

Türkiye 264

Ukraine 267

United Kingdom 270

United States 274

Viet Nam 278

Tables 7

Table 1.1. Global GDP growth is projected to moderate next year and recover only slowly 13

Figures 5

Figure 1.1. Global growth has remained resilient 14

Figure 1.2. Trade growth has been resilient 15

Figure 1.3. Strong tech-related demand is supporting trade, particularly in Asia 15

Figure 1.4. Strong ICT investment has supported economic growth 16

Figure 1.5. Global industrial production and trade are being supported by activity in the ICT sector 17

Figure 1.6. Consumer sentiment remains subdued and some indicators of economic activity have slowed 18

Figure 1.7. The impact of US tariffs is increasingly being felt 19

Figure 1.8. Estimated US effective tariff rates 21

Figure 1.9. USMCA compliance has limited effective tariff rates increases on US imports from Canada and Mexico 22

Figure 1.10. Different shares of duty-free trade with the United States result in wide variation in effective sectoral tariff rates 22

Figure 1.11. Labour demand has slowed and unemployment rates have generally drifted higher 23

Figure 1.12. Labour cost growth remains elevated and real wages have risen in most economies 24

Figure 1.13. Disinflation has levelled off in some economies partly due to higher goods inflation 25

Figure 1.14. Underlying inflation and short-term inflation expectations have risen in some economies 26

Figure 1.15. Elevated equity valuations are supported by the higher expected earnings of technology companies 27

Figure 1.16. Sustained debt issuance and declining bank lending rates 28

Figure 1.17. Global growth is projected to weaken before recovering gradually 29

Figure 1.18. Trade patterns are evolving with emerging markets becoming a key driver of growth 31

Figure 1.19. Inflation is projected to move towards central bank targets 32

Figure 1.20. Global production and demand for rare earths is highly dependent on China 34

Figure 1.21. Tariffs on pharmaceutical products or semiconductors would hit output in many countries 34

Figure 1.22. Services trade needs to be supported to raise growth 35

Figure 1.23. Trade policy uncertainty has risen to historically high levels 36

Figure 1.24. Trade policy uncertainty shocks inhibit trade growth 37

Figure 1.25. Strong growth of listed AI technology firms has had spillovers across the economy 39

Figure 1.26. The rise of NBFIs and banks’ increasing exposure to the sector 40

Figure 1.27. The market value of crypto-assets has risen sharply and returns are volatile 42

Figure 1.28. Stablecoins transactions and holdings of US Treasury bills are rising 42

Figure 1.29. Emerging-market economies have benefitted from resilient capital flows but face higher US tariffs 44

Figure 1.30. Real short-term interest rates have eased 46

Figure 1.31. Policy rate reductions are projected to end next year in many advanced economies 47

Figure 1.32. Real policy rates are projected to converge to neutral level ranges 48

Figure 1.33. Primary deficits, net interest payments and change in public debt ratios 50

Figure 1.34. Military spending is increasing at different rates across countries 51

Figure 1.35. Net purchases of sovereign bonds by investor type in selected advanced economies 54

Figure 1.36. Lower policy rates are projected in many emerging-market economies as inflation converges to targets 55

Figure 1.37. Fiscal balances are expected to improve in most emerging-market economies 56

Figure 1.38. Productivity growth and economic dynamism have slowed 57

Figure 1.39. Simplifying regulations is a reform priority in many economies 59

Figure 1.40. There is room to improve the regulatory framework for trade 60

Figure 2.1. Productivity and economic dynamism have slowed in the last 20 years 67

Figure 2.2. The share of labour costs devoted to regulatory tasks has increased in many US states and territories 70

Figure 2.3. The share of employment devoted to regulatory tasks has risen in selected OECD countries 71

Figure 2.4. The costs of regulation in Europe and Australia are similar to the United States 73

Figure 2.5. Rising regulatory compliance costs is associated with lower productivity and business dynamism in the long run 74

Figure 2.6. Rising regulatory compliance costs have suppressed productivity and business dynamism in the United States over the past decade 75

Figure 2.7. Increases in resources devoted to regulation gradually reduce productivity and business dynamism 77

Figure 2.8. A regulatory reset to restore productivity and dynamism prospects 78

Figure 2.9. While regulatory impact assessments are becoming more common, ex post evaluation tools remain underutilised 79

Figure 2.10. Most countries still lack comprehensive legislation on lobbying activities and fail to impose essential disclosure requirements 82

Figure 2.11. Deregulation has recently slowed, yet large regulatory barriers remain in services sectors 84

Figure 2.12. Labour productivity gains from easing regulations in retail and professional services would be significant 86

Figure 2.13. Insolvency regimes are more dynamism-friendly in some countries than others 87

Figure 2.14. The extent of labour protection varies across countries 88

Figure 2.15. Digital investment has outpaced other investment types across the OECD, most strongly in the United States 91

Boxes 7

Box 1.1. Recent developments in ICT investment 16

Box 1.2. US tariff rates: in law and in effect 19

Box 1.3. The impact of policy uncertainty on trade growth 35

Box 1.4. Growing linkages between stablecoins and traditional finance: implications for financial stability 41

Box 2.1. Estimating the resources dedicated to servicing regulatory compliance 71

Box 2.2. The short-run impact of regulations on productivity and business dynamism in the United States 76

Box 2.3. Pro-competitive product market regulations support economic growth 83

Box 2.4. Regulatory barriers in market services are extensive 85

Box 2.5. Five key regulatory barriers to solar, wind, and pumped hydro storage 93