The global economic outlook is improving though recovery is expected to be weak, said OECD recently.
According to the OECD’s latest Economic Outlook, a moderation of global GDP growth from 3.3% in 2022 to 2.7% in 2023 is projected, followed by a pick-up to 2.9% in 2024.
Lower energy prices are easing the strain on household budgets, business and consumer sentiment are recovering, albeit from low levels, and the re-opening of China has provided a boost to global activity, OECD noted.
Global economic outlook highlights
- Headline inflation in the OECD is projected to decline from 9.4% in 2022 to 6.6% in 2023 and 4.3% in 2024.
- The decline in inflation is due to tighter monetary policy taking effect, lower energy and food prices and reduced supply bottlenecks.
- GDP growth in the US is projected to be 1.6% in 2023, before slowing to 1.0% in 2024 in response to tight monetary and financial conditions.
- In the euro area, declining headline inflation will help to boost real incomes and contribute to a pick-up in GDP growth from 0.9% in 2023 to 1.5% in 2024.
- China is expected to see strong increases in GDP growth in 2023 (with 5.4%) and 2024 (with 5.1%), due to the lifting of the government’s zero-COVID policy.
- The upturn remains fragile and risks are tilted to the downside.
- Uncertainty over the evolution of Russia’s war of aggression against Ukraine and its global impact remains a key concern.
- Some of the favourable conditions that helped to reduce energy demand this year, like a mild winter in Europe, may not be repeated next year.
- The persistence of inflation is another key downside risk.
- Core inflation is proving sticky, on the back of strong service price increases and higher profits in some sectors.
- The impact of higher interest rates is increasingly being felt across the economy, and restrictive monetary policy, while necessary, risks further exposing financial vulnerabilities, in particular in countries with high debt.
Monetary policy should remain restrictive until there are clear signs that underlying inflationary pressures are durably reduced, OECD said.
Fiscal support, which has played a vital role in helping the global economy through the pandemic and the war in Ukraine, should be scaled back, becoming more targeted and calibrated toward future needs, OECD added.
Broad energy-related support should be withdrawn as energy prices fall and minimum wages and welfare benefits are being increased to take account of past inflation in many countries, OECD advised.