OECD Economic Outlook 2025 Issue 2: Global Risks Rise, India’s Growth Stays Resilient
The OECD’s Economic Outlook 2025, Issue 2, highlights a fragile global economy with increasing trade barriers, financial market vulnerabilities, and geopolitical tensions. Despite these challenges, India is projected to sustain robust and diversified growth compared to other major economies. The report emphasizes that India’s strong domestic demand and investment activities serve as key factors in maintaining its resilience, even as global risks such as capital flows, energy prices, and trade disruptions persist.
OECD Economic Outlook, 2025
The OECD Economic Outlook for 2025, released in December, 2025, offers a comprehensive assessment of the global economy. The main theme, “Resilient growth but with increasing fragilities,” highlights the delicate balance between economic progress and underlying vulnerabilities.
The report was unveiled on 2nd December, 2025, at the OECD headquarters in Paris, accompanied by a public briefing and a highlights video summarizing key findings.
This biannual publication serves as the OECD’s primary macroeconomic report, providing projections and analysis for member countries, major non-member economies, and the global economy as a whole.
Global Economy Performance
The OECD notes that the global economy in 2025 exceeded expectations, supported by improved financial conditions, increased AI-related investment, a modest recovery in global trade flows, and supportive macroeconomic policies in major economies. This resilience is particularly noteworthy given geopolitical tensions, elevated interest rates, and ongoing supply chain adjustments.
Labour Market Trends
While the OECD unemployment rate remains stable at 4.9%, indicating a lack of immediate downturn in labour markets, there are emerging weaknesses beneath the surface.
Job vacancies have dropped below 2019 levels in many OECD economies, hiring intentions are weakening, wage growth is slowing, and skills mismatches are widening due to rapid technological advancements.
Softening Confidence Indicators
Both business and consumer confidence are declining, reflecting uncertainties around trade policies, high borrowing costs, slowing industrial output, and geopolitical tensions. The OECD warns that this decline in confidence could lead to weaker investment and consumption in 2026.
AI-Driven Investment
The December 2025 Outlook highlights the role of AI-related investment in supporting global growth. The OECD highlights the significance of artificial intelligence as a key topic, highlighting its increasing impact on productivity and economic transformation.
AI adoption is accelerating across various sectors, leading to productivity gains in advanced economies. Countries heavily investing in AI infrastructure, such as the US, South Korea, and Japan, are experiencing stronger medium-term growth prospects.
Major Risks Identified
The report outlines four major risks that could hinder global growth in 2026, including rising trade barriers, financial risk repricing, vulnerabilities in non-bank financial institutions, and volatile crypto asset markets.
Rising Trade Barriers
Trade tensions are still high, with the introduction of new tariffs, export controls, and supply chain adjustments impacting global trade. The OECD cautions that increased fragmentation could lead to a significant decrease in global output.
Sharp Repricing of Financial Risk
A sudden change in market sentiment could lead to – Increased volatility in the bond market, Capital outflows from emerging markets, Strain in leveraged sectors, Liquidity challenges in credit markets. Considering the elevated levels of global debt, this is a major risk to be aware of.
Vulnerabilities in Non-Bank Financial Institutions
Shadow banking entities, such as private credit funds and non-bank lenders, are facing growing risks related to liquidity and maturity mismatches.
Volatile Crypto Asset Markets
The OECD cautions that crypto-asset markets are extremely speculative, with the potential for sudden corrections that could impact:
- Retail investors
- Financial stability in markets with significant crypto participation
- Liquidity conditions in related asset classes
The organization advocates for more robust regulatory frameworks.
The OECD warns that sudden price corrections could spill over into broader financial markets, especially where retail participation is high. These risks collectively underscore the fragility of the global recovery.
Regional Outlooks
The report provides insights into the economic performance of different regions, highlighting growth drivers, challenges, and policy implications for the United States, Euro Area, Asia, and Emerging Markets.
India’s Outlook through the OECD Lens
The December 2025 Outlook (Issue 2) emphasizes global risks, with implications for India. The OECD recognizes India as a fast-growing economy driven by resilient domestic demand, robust investment, digital infrastructure expansion, and a thriving services sector, positioning it as a key player in global growth.
However, India faces risks from escalating global trade barriers that could hamper export competitiveness, slow manufacturing recovery, and increase input costs. The country’s integration into global supply chains makes it vulnerable to trade disruptions.
Financial market fragilities pose another risk, with potential impacts on India such as capital outflows, currency volatility, higher borrowing costs, and pressure on corporate balance sheets. Recent FPI outflows and rupee depreciation align with these concerns.
Volatility in oil prices presents challenges for India, widening the current account deficit, increasing imported inflation, and straining fiscal resources due to fuel subsidies, highlighting a persistent macro vulnerability.
On a positive note, the OECD identifies AI investment as a growth opportunity globally, offering India potential productivity gains, enhanced competitiveness in services and manufacturing, and increased demand for digital infrastructure, positioning the country well for this structural shift.
Climate disruptions and energy transition challenges are global risks that also affect India, leading to economic losses, the need for accelerated renewable investments, agricultural vulnerability to extreme weather, and the necessity for stronger adaptation policies.
Policy priorities for India include maintaining targeted fiscal support, enhancing financial regulation, improving trade competitiveness, accelerating digital and AI infrastructure, managing inflation risks, and enhancing labor market flexibility to navigate these challenges effectively.
Climate Transition and Energy Markets
The OECD emphasizes climate mitigation and the transition to net zero as a key theme in the 2025 Outlook, stressing the need for accelerated climate transition policies to reduce long-term risks.
Policy Recommendations
The OECD offers policy recommendations to enhance resilience, including targeted fiscal support, strengthened financial regulation, accelerated AI and digital infrastructure investment, enhanced trade cooperation, prioritization of climate transition policies, and improved labour market flexibility.
Conclusion
The OECD’s global economic outlook does not specifically focus on India, but the highlighted risks have implications for the country’s economy. India’s robust domestic fundamentals and growing AI investments make it a standout in global growth despite the challenges.
The OECD’s Economic Outlook for December 2025 presents a nuanced view of the global economy, highlighting both resilience and growing fragilities. The report underscores the importance of smart policies, technological investments, and global cooperation to reinforce resilience in the face of risks and uncertainties as the world enters 2026.
