OECD forecasts growth with downside risks.
The Organisation for Economic Co-operation and Development (OECD) has released its latest Interim Economic Outlook report, projecting global growth to reach 2.6% in 2023 and 2.9% in 2024. The report attributes this positive outlook to improved business and consumer confidence, falling food and energy prices, and the reopening of the Chinese economy.
In terms of inflation, the report forecasts a gradual decrease in headline inflation through 2023 for most G20 countries. This is due to tighter monetary policy, declining global food prices, and lower energy prices following a mild European winter. However, the OECD cautions that core inflation remains persistent due to rising service prices and labor market cost pressures. As a result, many central banks will need to maintain high policy rates until 2024 to manage inflationary pressures.
Annual GDP growth in the euro area is projected to be 0.8% in 2023, but is expected to increase to 1.5% in 2024 as the drag on incomes from high energy prices subsides. Meanwhile, growth in China is expected to rebound to 5.3% this year and 4.9% in 2024. In the US, annual GDP growth is projected to be 1.5% in 2023 and 0.9% in 2024, as monetary policy moderates demand pressures.
OECD Secretary-General, Mathias Cormann stated that while the outlook is slightly more optimistic than previous forecasts, the global economy remains fragile. Risks to the outlook include persistent large-scale energy and food market disruptions, Russia’s war against Ukraine, services inflation, financial market turbulence, and the steady decline in underlying growth prospects. Cormann emphasized that targeted fiscal support and structural reforms will be crucial for optimizing the recovery and long-term growth prospects.
The OECD warns that the improvement in the economic outlook is still in its early stages, and risks remain tilted to the downside. Uncertainty about the course of the war in Ukraine and its broader consequences is a key concern. The report notes that monetary policy changes could continue to expose financial and banking sector vulnerabilities and make it more difficult for some emerging market economies to service their debts. Additionally, global energy market pressures could reappear, leading to renewed price spikes and higher inflationary pressures.