Global Economic Outlook: Resilience Tempered by Trade Risks, Warns OECD
The global economy has displayed more resilience than initially expected during the first half of 2025, but significant risks persist due to rising trade barriers and ongoing geopolitical and policy uncertainties, according to the latest OECD Interim Economic Outlook report.
The report projects a slight moderation in global growth, from a figure of 3.3 percent recorded in 2024 to an expected 3.2 percent in 2025, before easing further to 2.9 percent in 2026.
This forecasted slowdown is attributed to several factors, primarily including the drawing down of stockpiles that were built up by businesses ahead of new tariff implementations, alongside continued pressures observed on both business investment levels and international trade volumes.
OECD Secretary-General Mathias Cormann cautioned that while the global economy has remained resilient, the full negative effects of higher tariffs and the pervasive policy uncertainty have not yet been completely felt across all sectors.
He specifically warned, “Significant risks remain, including fiscal and financial stability concerns,” urging governments worldwide to prioritize the resolution of escalating trade tensions and work diligently to ensure a fair, rules-based system of global trade.
The OECD also issued a clear recommendation for central banks to maintain vigilance, ensuring they are prepared to adjust monetary policy as necessary to manage lingering inflationary pressures and support stability.
Fiscal Discipline and Structural Reforms for Medium-Term Stability
The Organisation for Economic Co-operation and Development (OECD) is strongly urging governments to adopt prudent fiscal discipline to manage rising public debt and budgetary pressures, emphasizing that medium-term structural reforms are crucial for improving living standards and fully harnessing technological gains.
The necessity for fiscal discipline stems from the growing global concern over rising national debt and the budgetary pressures associated with elevated interest rates.
To effectively stabilize debt levels, the OECD recommends that governments develop robust medium-term adjustment plans that clearly outline spending reallocation priorities and strategies for revenue optimization.
These measures are seen as essential to creating fiscal space and building resilience against future economic shocks.
Furthermore, OECD Chief Economist Álvaro Santos Pereira highlighted the transformative role of structural reforms, stating that they “will be crucial to improving living standards and realizing gains from technologies such as artificial intelligence.”
These reforms would focus on improving market competition, boosting labor force participation, and enhancing the productivity benefits derived from emerging technologies.
Inflation is concurrently moderating across the majority of G20 economies, a trend driven by the projected global growth slowdown and an easing of pressures in labor markets.
Headline inflation is expected to fall from 3.4 percent in 2025 to 2.9 percent in 2026.
Meanwhile, core inflation in advanced G20 economies is forecast to remain relatively stable, predicted at 2.6 percent in 2025 and easing slightly to 2.5 percent in 2026.
Indonesia’s Inflation Outlook Amidst Easing Global Pressures
While the broader global trend indicates moderating inflation, Indonesia’s inflation projection for 2025 is notably lower than the G20 average, though it is expected to rise in 2026, primarily influenced by the lagged effects of currency depreciation.
For the Indonesian economy specifically, the OECD projects that inflation will stand at a manageable 1.9 percent in 2025, which is significantly below the expected G20 average.
However, this rate is projected to increase to 2.7 percent in 2026, a rise largely influenced by the lagged effects of past currency depreciation, which increases the local-currency cost of imported goods.
Indonesia’s economic performance remains a critical point of focus for the OECD, given its role as a large, rapidly growing emerging market economy within the G20 framework.
The lower expected inflation rate in the immediate term provides Bank Indonesia with greater flexibility in managing monetary policy compared to central banks in advanced economies that are still heavily focused on taming high core inflation.
The global environment of slowing trade, as noted in the OECD report, presents both challenges and opportunities for Indonesia.
While global demand for Indonesian exports may soften, the push for greater regional trade and investment, coupled with domestic structural reforms—as advocated by the OECD— could help mitigate external risks and solidify Indonesia’s long-term economic resilience and growth trajectory.
