Question Period Note: OECD Economic Outlook – December 2025

• The Organisation for Economic Co-operation and Development (OECD) released its Economic Outlook on December 2.

• The global economy has remained resilient, but growth is expected to slow as higher U.S. tariffs and ongoing uncertainty weigh on global prospects.
• Canada is not immune to these headwinds. Still, the OECD expects Canada to have the second strongest growth in the G7 over the next two years.
• Canada is expected to maintain the strongest fiscal position in the G7, with by far the lowest net-debt-to-GDP ratio.

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• Global Outlook: GDP growth is expected to slow from 3.2% in 2025 (no change from the September 2025 Interim Assessment), to 2.9% in 2026 (no change), before picking up to 3.1% in 2027. The full effects of tariffs are being increasingly felt and are now weighing on the outlook, as tariff pass-through to prices is expected to reduce household consumption and business investment. Global trade growth has already moderated in Q2 of 2025 and labour markets are showing signs of easing, even as the global economy proved more resilient this year than originally expected.
• Regional Outlook: Most economies are forecasted to follow the same pattern as global growth, moderating in 2026 before slowly recovering in 2027. U.S. real GDP growth is forecasted to slow down from 2.0% in 2025 (+0.2 p.p.) to 1.7% in 2026 (+0.2 p.p.) and pick up to 1.9% in 2027. This year’s growth was supported by considerable investments into AI / ICT infrastructure and equipment. U.S. demand continued to fuel Asian ICT manufacturing and exports despite rising trade barriers, supporting stronger growth in the region. For China, this translates into projected growth of 5.0% in 2025 (+0.1 p.p.), 4.4% in 2026 (unchanged), and 4.3% in 2027. The Euro area growth is expected to slow down from 1.3% in 2025 (+0.1 p.p.) to 1.2% in 2026 (+0.2 p.p.) and pick up to 1.4% in 2027.
• Inflation Developments: The OECD expects that headline inflation in G20 economies will moderate from 3.4% in 2025 to 2.8% in 2026 and further to 2.5% in 2027. Disinflation has however levelled off in some economies including the U.S., where inflation is expected to pick up from 2.7% in 2025 to 3.0% in 2026 as higher import tariffs feed through to prices, in particular foodstuffs.
• Canadian Economic Outlook: Broadly in line with Budget 2025 projections, the OECD expects real GDP growth in Canada to remain subdued at 1.1% in 2025 (unchanged) and 1.3% in 2026 (+0.1 p.p.), reflecting U.S. tariffs and trade policy uncertainty, before strengthening to 1.7% in 2027. The OECD expects the Canadian economy to see the second fastest rate of growth among the G7 over the next two years, behind the U.S.
• Canadian Fiscal Outlook: With targeted support for sectors most affected by tariffs, broader tax reductions and increased defence and infrastructure spending, the OECD is now projecting larger deficits than in its June 2025 report. Canada’s general government deficit is projected to be 1.9% of GDP in 2025 and 2.3% in 2026 (up from 1.7% in June), before declining to 1.9% in 2027. Canada’s deficit-to-GDP ratio is projected to be the second smallest in G7 through the 2024 to 2027 period, behind Japan. The OECD expects Canada’s net debt-to-GDP ratio to record a third consecutive annual decline and reach 8.5% by the end of this year. It is projected to stand at 8.8% by the end of 2027, remaining by far the lowest among G7 countries
• Risks: The OECD notes its outlook remains “fragile” and highlights downside risks such as another rise in trade barriers, high asset valuations based on optimistic expectations of AI-driven corporate earnings, and fiscal vulnerabilities – which could push up long-term sovereign yields, tighten financial conditions and hinder growth.
• Policy Recommendations: The OECD notes that monetary policy should remain vigilant, continuing to lower rates in economies whose inflation rate is at or returning to target, but also be ready to react to renewed inflation pressures or unexpected labour market weakness. On the fiscal side, governments should pursue fiscal reform alongside other priorities. The OECD also emphasizes governments should work together within the global trading system and avoid retaliatory trade measures.