The OECD Forecasts Global Economic growth of 2.7% this year and 2.9% in 2024
The Organization for Economic Co-operation and Development has forecast a weak global economic recovery from the shocks caused by the coronavirus pandemic and the Russian invasion of Ukraine, due to persistently high inflation and the associated restrictive policies of leading central banks seeking to contain price pressures by raising interest rates.
In its latest economic outlook released on Wednesday, the OECD expected global growth to slow to 2.7% in 2023 from 3.3% a year earlier, a slight upward revision from the Paris-based organization's previous estimate for an expansion of 2.6 percent in the current year.
For 2024, the OECD continues to forecast that global gross domestic product will grow by 2.9 percent.
However, the expected economic recovery this year and next would be below the average growth of 3.4% in the last few years before the Covid-19 pandemic.
The US, the Eurozone and China will see a relative slowdown in their economic recovery as inflation will be stronger than in the period up to 2019, the OECD report said.
The organization expects the US GDP to grow by 1.6% this year and by 1% in 2024, the Eurozone - by 0.9% and 1.5% respectively, China - by 5.4% and by 5 .1%, Great Britain - by 0.3% and 1.0% and Japan - by 1.3% in 2023 and 1.1% in 2024, respectively.
At the same time, inflation in OECD member countries is expected to reach 6.6% in 2023, before slowing to 4.3% in 2024, with annual inflation in major advanced economies expected to be slightly above 2.25% only by the fourth quarter of next year.
The inflationary situation poses problems for central banks as they must continue to respond to underlying price pressures that are proving stronger than expected while not hurting economic growth too much, the OECD noted.
"The global economy is emerging from the crisis, but it has a long way to go to achieve strong and sustainable growth," said Clare Lombardelli, chief economist of the organization, Bloomberg reported. "Policymakers must mitigate the impact of a series of negative shocks on the global economy and face a complex set of challenges in doing so," she added.
A day earlier and the World Bank warned that the global economy is in a precarious state and will see a significant slowdown in growth later this year in view of the negative effect of interest rate hike policies.
The world's main monetary authorities face imminent decisions on whether to halt or continue the fastest rate-hiking cycle since the 1980s, with back-to-back regular meetings of the US Federal Reserve and the European Central Bank coming up next week.
In this regard, the OECD noted that previous interest rate hikes were already affecting property and financial markets in particular, but that their full effect would not emerge until later this year and into 2024. The organization said there was uncertainty about the strength of this impact, while inflation may still continue to be more resilient than expected.
The Paris-based organization urged central banks to remain accommodative and even raise rates further if necessary until there are clear signs that underlying inflationary pressures have been permanently eased. The OECD said authorities should make full use of liquidity tools if tighter policies create market stress, and that governments in emerging markets could temporarily implement currency interventions or capital controls to avoid serious risks to stability.
To help central banks limit the extent of demand-side pressure on inflation, governments should provide fiscal support to households, but better target the most vulnerable, the OECD said.
Figures from the organization show that aid to mitigate energy costs is still substantial in Europe and largely untargeted, thus putting additional pressure on public finances already carrying greater debt burdens following the coronavirus pandemic.
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