Internet InfoMedia global growth forecast is lifted but risks loom o e c d says
Internet InfoMedia 02global econ hmqj facebookJumbo

The global economy has proved resilient and inflation has declined, but any widening of the conflict in the Middle East could increase price pressures and dampen growth.

Global inflation is starting to cool after aggressive campaigns by central banks to bring high prices under control, and the economic outlook is brightening after a turbulent period, but clouds loom over the recovery, according to a forecast released on Thursday.

The rebound is unfolding at an uneven speed around the world, and geopolitical tensions could pose a major risk to growth and inflation — especially if the conflict in the Middle East and attacks in the Red Sea, a critical shipping zone for trade, were to widen, the Organization for Economic Cooperation and Development, a think tank in Paris, said in its latest economic survey.

“The global economy has proved resilient, inflation has declined within sight of central bank targets and risks to the outlook are becoming more balanced,” the organization’s secretary-general, Mathias Cormann, said during a news conference Thursday in Paris. “But uncertainty remains.”

Inflation among the 38 O.E.C.D. member countries is expected to fall to 4.8 percent this year and 3.5 percent in 2025, after hitting 9.4 percent in 2022, when Russia’s invasion of Ukraine helped set off an energy crisis. Inflation in the United States and in the euro area are expected to fall this year and next toward a 2 percent target that policymakers say is essential for maintaining the stability of prices.

“We’ve been through an inflation shock of a generation,” the organization’s chief economist, Clare Lombardelli, said during the briefing. The biggest price increases have been for essential items like food and energy, she said, adding, “Those on the lowest incomes have been squeezed.”

High interest rates have helped bring prices down, but there is still a risk that inflation may stay higher for longer than expected, Ms. Lombardelli said.

In the United States, the Federal Reserve left interest rates steady on Wednesday, citing wariness about how stubborn inflation was proving. Even so, the United States is expected to remain an engine of global growth this year, expanding at a 2.6 percent pace, the O.E.C.D. forecast. But the economy will start to cool next year, slowing to 1.8 percent growth, as businesses and households adapt to high borrowing costs and begin to curb spending, the report said.

Europe is badly lagging by comparison, as soaring energy prices curbed manufacturing and a cost of living crisis kept consumers from spending. Both the euro currency bloc and Britain ended 2023 in recession, deepened by record high interest rates deployed by the European Central Bank and the Bank of England to help fight inflation.

Germany was hit especially hard by the energy shock, although the downturn in the eurozone was offset to some extent by stronger growth in southern European countries like Greece and Spain. The outlook should improve next year, as high interest rates come down, unleashing more spending by businesses and households. The O.E.C.D. forecast the eurozone economy to expand at 1.5 percent in 2025, more than double the expected growth rate this year.

In Britain, however, growth will remain sluggish at 0.4 percent in 2024 before improving to just 1 percent in 2025 as interest rates there remain high, making it the weakest economy among the Group of 7 nations.

In China, a boom in exports, from solar panels to electric vehicles, has powered the manufacturing sector and is helping to offset a devastating slump in the housing market, which makes up about a quarter of the economy. A fast-unfolding real estate crisis has sapped the wealth of millions of Chinese people and has not touched bottom, leading the government to deploy stimulus spending. China’s growth is expected to slow moderately, to 4.9 percent in 2024 and 4.5 percent next year, the O.E.C.D. said.

The organization pointed to other risks, including the possibility that interest rates in the biggest economies may need to stay high if inflation does not cool as much as expected. That could give rise to new financial vulnerabilities, especially in emerging countries where large amounts of debt coming due in the next three years might have to be rolled over at higher costs.

Against an uncertain backdrop, the organization admonished governments to do a better job of managing a general worldwide increase in debt — a problem that is expected to worsen especially in countries that will soon face additional spending pressures from aging populations.

Leave a Reply

Your email address will not be published. Required fields are marked *

Optimized by Optimole