OECD Flags Tariffs, AI Boom Could Test Global Growth Resilience

The Organisation for Economic Co operation and Development released its Economic Outlook on December 2, saying global expansion is proving more durable than forecasters anticipated thanks in part to a burst of corporate spending on artificial intelligence. At the same time the Paris based body issued a clear caution, arguing that an escalation of tariffs and growing trade frictions would materially increase downside risks to growth, investment and trade flows.

The OECD said it had nudged up its forecasts for the 2025 to 2027 period, reflecting stronger business investment in computing equipment, software and data infrastructure associated with AI adoption. That investment, the organisation said, is supporting activity across advanced economies and some emerging markets by driving equipment orders, boosting professional services demand and encouraging follow on hiring in technology and data related sectors.

But the Outlook stresses that this upside is conditional. The OECD highlighted two interlocking risks. First, rising tariffs and protectionist measures would raise policy uncertainty and raise costs for international supply chains, eroding the incentives for firms to commit to long horizon investment. Second, the organisation warned that investor enthusiasm for AI may be outpacing fundamentals, creating heightened vulnerability to sharp market corrections that would tighten financing conditions and transmit quickly into the real economy.

The report points to a familiar transmission mechanism. A significant market correction would reduce equity wealth, constrain capital raising for smaller firms, and could force repricing across corporate credit markets. That, combined with higher trade barriers, would slow the flow of intermediate goods and services, lengthen global supply chains and depress cross border investment decisions. Economies that are highly trade dependent or have limited fiscal buffers would be most exposed.

Financial markets have already priced elevated expectations for several AI leaders, and the OECD cautioned that such concentration can amplify volatility. Policymakers face a narrow path, the report implies. Central banks remain focused on price stability and cannot easily offset a growth shock caused by trade disruption without risking inflationary spillovers if policy buffers are limited. Fiscal authorities meanwhile must balance support for productive investment in new technologies with safeguards against creating bubbles through indirect subsidies or overly generous tax breaks.

Longer term the OECD argues that AI driven capital deepening can raise productivity potential, but gains are neither automatic nor evenly distributed. Realising the benefits will require coherent policies that reduce trade policy uncertainty, sustain open markets for goods and digital services, and invest in skills and re skilling for workers displaced by technological change.

The Outlook leaves a conditional verdict on global resilience. Current growth appears sturdier than feared, but the OECD makes clear that resilience will depend on policymakers curbing protectionist drift and on market participants tempering speculative excess. If they fail to do so, the organisation warned, the twin forces of tariffs and a volatile AI investment cycle could quickly convert optimism into a sharper global slowdown.