OECD economic outlook : tackling uncertainty, reviving growth. No. 117 (volume 2025/1)

Title page 1

Contents 4

Acknowledgements 8

Editorial: Tackling uncertainty, reviving growth 9

1. General assessment of the macroeconomic situation 11

Introduction 11

Recent Developments 13

Projections 27

Risks 33

Policies 43

References 60

Annex 1.A. Policy and other assumptions underlying the projections 64

2. Reigniting investment for more resilient growth 65

Summary 65

A prolonged period of weak investment has weighed on potential output growth 65

Business investment has been held back by subdued demand, elevated uncertainty and structural factors 68

Housing investment has fallen short of demand, reducing affordability 83

Public investment has picked up but remains below pre-GFC levels 84

Public policy reforms can help reinvigorate investment 85

References 95

Annex 2.A. An investment accelerator model 100

3. Developments in individual OECD and selected non-member economies 102

Argentina 103

Australia 106

Austria 109

Belgium 112

Brazil 115

Bulgaria 119

Canada 122

Chile 126

China 129

Colombia 133

Costa Rica 136

Croatia 139

Czechia 142

Denmark 145

Estonia 148

Euro area 151

Finland 155

France 158

Germany 162

Greece 166

Hungary 169

Iceland 172

India 175

Indonesia 179

Ireland 183

Israel 186

Italy 189

Japan 193

Korea 197

Latvia 200

Lithuania 203

Luxembourg 206

Malaysia 209

Mexico 212

Netherlands 215

New Zealand 218

Norway 221

Peru 224

Philippines 227

Poland 230

Portugal 233

Romania 236

Slovak Republic 239

Slovenia 242

South Africa 245

Spain 248

Sweden 251

Switzerland 254

Thailand 257

Türkiye 260

Ukraine 263

United Kingdom 266

United States 270

Viet Nam 274

Tables 7

Table 1.1. Global GDP growth is projected to slow 13

Figures 5

Figure 1.1. Global growth was holding up ahead of recent trade policy announcements 14

Figure 1.2. Recent trade policy announcements imply substantial change in effective tariffs 18

Figure 1.3. Direct exposure to US tariff increases 19

Figure 1.4. Direct and indirect trade effects 19

Figure 1.5. Recent economic indicators have weakened in several large economies 20

Figure 1.6. Near-term trade activity has been resilient 21

Figure 1.7. Financial conditions are tighter than at the end of 2024 22

Figure 1.8. Equity prices of companies sensitive to US tariffs have underperformed 23

Figure 1.9. Volatility has eased, but lower-rated corporate bond spreads remain elevated 24

Figure 1.10. Older workers have been an important source of increased labour supply 25

Figure 1.11. Inflation remains high with goods inflation having recently picked up 26

Figure 1.12. Inflation expectations have recently increased in some economies 27

Figure 1.13. Global growth is projected to weaken 28

Figure 1.14. The regional drivers of trade growth are changing 30

Figure 1.15. Current account balances will change only slowly 31

Figure 1.16. A more balanced labour market and stronger productivity growth should support disinflation 32

Figure 1.17. Inflation is projected to move further towards targets 32

Figure 1.18. Further trade cost increases and heightened uncertainty would harm growth 34

Figure 1.19. An increasing share of households in the United States and Canada are now expecting high inflation 35

Figure 1.20. Equity prices remain richly valued and many financial markets are increasingly concentrated 36

Figure 1.21. Expected corporate earnings continue to rise despite the widespread equity market decline in early April 37

Figure 1.22. Default risk premia have risen and bank performance has weakened 38

Figure 1.23. Global passive investing and use of derivatives by non-bank financial intermediaries have risen 40

Figure 1.24. Capital flows have been sensitive to exchange rate movements relative to the US dollar 41

Figure 1.25. Borrowing has become more challenging for lower income and riskier countries 42

Figure 1.26. Long-term real interest rates remain high but short-term real rates have declined 43

Figure 1.27. Policy rates are projected to decline further in most advanced economies 44

Figure 1.28. Real policy rates are projected to converge towards neutral levels 45

Figure 1.29. Public debt determinants in OECD countries 46

Figure 1.30. Substantial fiscal consolidation is projected in some high debt countries 47

Figure 1.31. Defence spending is increasing in advanced economies in Central and Eastern Europe 48

Figure 1.32. Ambitious military spending goals could force tough fiscal policy choices 50

Figure 1.33. Government spending patterns vary across OECD countries 52

Figure 1.34. Policy rates are projected to decline further in most emerging-market economies 53

Figure 1.35. Fiscal balances are expected to improve in most emerging-market economies 54

Figure 1.36. Opportunities exist to raise living standards by lowering trade barriers 55

Figure 1.37. Trade facilitation improvements lower trade costs 56

Figure 1.38. Improving services regulation would boost trade growth 57

Figure 1.39. Business investment gaps are large across OECD economies 58

Figure 1.40. The gap between financing costs and hurdle rates has increased 59

Figure 2.1. Weak capital accumulation has held back growth 66

Figure 2.2. Real investment remains below the pre-GFC and pre-pandemic trends in many economies 67

Figure 2.3. Net investment-to-GDP ratios have declined since the global financial crisis 68

Figure 2.4. Business investment has been weak across sectors 69

Figure 2.5. Business investment 'gaps' are large across OECD economies 70

Figure 2.6. The cost of capital has fallen and company valuations have held up 71

Figure 2.7. Strong corporate profitability has not translated into higher gross fixed capital investment 72

Figure 2.8. Uncertainty has increased, becoming a greater obstacle to investment 73

Figure 2.9. An uncertainty shock decreases business investment and GDP 74

Figure 2.10. Investment patterns have shifted towards the digital and knowledge-based economy 76

Figure 2.11. Tech firms lead the way in digital and knowledge investment growth 76

Figure 2.12. AI-related firms increasingly invest more than other firms 77

Figure 2.13. Declines in net business investment are driven by rising depreciation and weak non-digital tangible investment 78

Figure 2.14. Firms have used savings to accumulate financial assets and return funds to shareholders 79

Figure 2.15. The rate of return on corporate capital assets remains high 80

Figure 2.16. The gap between financing costs and hurdle rates has increased 80

Figure 2.17. Industry and product market concentration has increased 81

Figure 2.18. Markups have increased across OECD countries 82

Figure 2.19. Housing investment has not kept pace with demand, weakening affordability 84

Figure 2.20. Public investment was supportive in many countries during the aftermath of COVID-19 85

Figure 2.21. The major barriers to private investment can be influenced by government policy 86

Figure 2.22. Investment would benefit from further product market reforms 88

Figure 2.23. Restrictions on FDI are particularly pronounced in some emerging-market economies 90

Figure 2.24. Government involvement in venture capital deals varies greatly across countries 91

Figure 2.25. Government investment can have clear benefits for long-term growth 92

Figure 2.26. Effective corporate income tax rates vary strongly across assets and source of finance 94

Boxes 7

Box 1.1. The impact of US tariff policy changes will be significant 16

Box 1.2. The distribution of household inflation expectations 35

Box 1.3. Higher defence spending: economic and public finance implications 47

Box 2.1. Economic policy uncertainty and business investment in OECD countries 73

Box 2.2. Government investment and growth-enhancing structural outcomes 92

Box 2.3. Corporate income taxation and investment: impact and policy design considerations 94

Annex Tables 7

Annex Table 2.A.1. Panel regression results for simple accelerator model 100

Annex Table 2.A.2. Panel regression results for extended accelerator model 101