The Organisation for Economic Co-operation and Development has slightly increased their global growth forecast for 2024, due to the expected increase in real incomes as a result of falling inflation and a more accommodative monetary policies in many countries.
In its updated ‘Interim Economic Outlook,’ published on Tuesday, the grouping increased its global growth forecast from 3.1% to 3.2% for 2024, and left its previous forecast of 3.2% for 2025.
OECD Secretary-General Mathias Cormann said,
The global economy has begun to change course, as evidenced by declining inflation and robust growth in trade. We expect the global economy to grow at 3.2% in both 2024 and 25.
OECD also said that inflation is moderating. The headline rate of G20 countries’ inflation will be reduced to 5,4% by 2024, and then to 3,3% in 2025.
In 2025, core inflation is expected to fall to 2,1% and then to 2,7% for advanced G20 economies.
The OECD stated that as the lagged effect of tightening by central banks fades away, lower interest rates would increase spending in the future, while consumers will benefit from lower inflation.
The Paris-based OECD stated that if the recent drop in oil prices continues, headline global inflation may be 0.5 points less than anticipated over the next year.
The US economy is expected to slow down, but the Eurozone will recover
The growth prospects of major economies vary. The US GDP is forecast to drop to 2,6% by 2024 from the recent high rate, and then to 1,6% by 2025.
A monetary policy ease will probably cushion the slowdown.
The euro zone is expected to grow to 1,3% by 2025 from 0.7% in the year 2024. This will be driven by an improvement in credit and real incomes.
China’s growth is expected to moderate to 4,9% by 2024, and to reach 4.5% by 2025.
In spite of policy stimuli, the ongoing correction in the real estate market and low consumer demand is seen as factors that limit growth.
Expected return of inflation to target levels
The projected decrease in inflation is a key element in achieving a positive outlook.
The G20 countries’ headline inflation is projected to fall from 6,1% in 2023, to 5,4% in 2024, and then to 3,3% in 2025. This aligns with the central bank target in many economies.
Source: OECD
Nevertheless, inflationary risk persists. Although food and energy costs are falling in most OECD nations, service inflation is still high.
Cormann warned that “monetary policy should remain cautious until the inflation returns to central bank target levels,” noting carefully when rate reductions should be made based on available data.
OECD warns against several risks
Despite the optimistic outlook, there are several risks.
Financial market disruptions may occur if tight monetary policy has a greater impact than expected.
Geopolitical tensions such as those caused by the war in Ukraine or conflicts in the Middle East can also threaten global stability and reignite inflationary forces.
The upside is that real wage increases could boost consumer confidence, and further drops in oil prices globally could speed up disinflation.
These factors are dependent on a stable environment.
Reforms fiscal and structural are needed
The OECD stresses the importance of structural and fiscal reforms in order to achieve long-term growth.
The high public debt levels in many countries highlight the necessity of regaining fiscal room to deal with future shocks. Cormann stated.
It is necessary to take decisive policy actions to increase spending efficiency, reallocate funds to support growth and opportunities, and maximise tax revenue.
OECD has also called on structural reforms for medium-term growth to be boosted.
Alvaro Santos Pereira is the chief economist at OECD. He noted that “the pace of reforms has slowed down in recent years.”
Product market reforms, which promote an open marketplace with a healthy competitive dynamic remain the key to reviving growth amid sluggish productivity growth and tight fiscal spaces.
The OECD highlights the need for prudent monetary and fiscal policy to manage risks, while maximizing opportunities to sustain economic recovery.
The post OECD Upgrades Global Growth Forecast to 3.2% in 2024 As Rate Hikes Fade and Inflation Falls may be updated as new updates are made.
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