Michelle ThompsonAccording to the most recent estimates from the OECD (The Organization for Economic Cooperation and Development), growth, which was already “sub-par” this year at 3%, will decrease to 2.7% in 2024. With the exception of 2020, when Covid occurred, that would be the weakest yearly expansion since the global financial crisis.
OECD Chief Economist Clare Lombardelli as saying that “high inflation continues to unwind, but the world economy remains in a difficult place.” during a news conference on Tuesday. “Slow growth and inflation pose a double challenge to us,” she continued.
The Paris-based organization warned that risks to its forecast are biased to the downside because previous rate hikes may have had a bigger effect than anticipated and because inflation may end up being persistent, forcing further monetary tightening. It was stated that China’s issues constituted a “key risk” to global output.
The OECD predicts that following a stronger-than-expected start to 2023, global GDP would drop, helped by lower energy costs and China’s openness. Consumer and business confidence are falling, the repercussions of tighter monetary policy are becoming more obvious, and China’s recovery is stalling.
Given that their efforts to fight inflation are still having an effect on the economy and that lawmakers are concerned that activity is being strangled, the gloomy situation will put central bankers to the test.
Even while there were hints that the pinnacle may have been reached, the European Central Bank this week announced its tenth straight increase. The Federal Reserve is expected to take no action on Wednesday.
As core price increases persisted in some countries despite dropping headline indicators, the OECD issued a warning against slowing down. Rate cuts are not anticipated to occur until “well into 2024,” the research states.
According to the OECD, “Monetary policy needs to remain restrictive until there are clear signs that underlying inflation pressures have durably abated,” according to Bloomberg.
Lombardelli claimed that some nations have seen a minor rise in inflation as a result of the 25% increase in oil prices since May, depending on their exposure and whether they are importers or exporters of the fossil fuel.
She claimed that this would undoubtedly displease nations. “Throughout this time, oil prices are likely to remain erratic. We’ve highlighted it as one of the risks because of this. As we have learned, there will undoubtedly be a squeeze on demand and household budgets as a result.
According to the OECD’s estimate of regional and national outlooks, Germany will experience a 0.2% fall in 2023, making it the only G-20 nation (apart from Argentina) to do so. Additionally, the OECD revised down its growth forecasts for this year and next for the euro-area. Even if the US economy expanded faster than forecast in June, its growth rate will decline from 2.2 percent in 2023 to 1.3 percent in 2024.
The output in China is anticipated to increase by less than 5% next year as a result of weak domestic demand and structural issues in the real estate markets, which led to the highest growth downgrades. China’s options for offering effective policy support may be more limited than in the past, according to the OECD.
The group issued a warning against governments increasing expenditure to spur economic growth. Instead, it advised cutting back on support to prepare for impending investment challenges and avoid escalating the inflation that central banks are attempting to contain.
