The Organization for Economic Cooperation and Development (OECD) announced on Wednesday that global economic growth remains robust and inflation is on a downward trajectory, though significant risks persist. In line with this, the think tank has slightly increased its growth forecast for the year.
The Paris-based institution now projects the global economy to grow by 3.2% in 2023, marginally up from the 3.1% prediction made in May. The global economy saw a growth of 3.1% in 2022.
The projection for 2024 remains steady at 3.2%.
According to the OECD Interim Economic Outlook report, factors such as robust trade growth, improvements in real incomes, and a more accommodative monetary policy across various economies are supporting global growth.
OECD anticipates that inflation in most G20 economies will return to central bank targets by the end of 2025. This year's forecast for headline inflation has been revised upwards to 5.4%, from the 5.0% predicted in May. For next year, the forecast has been slightly adjusted down to 3.3% from 3.4%.
Core inflation in the G20 advanced economies is expected to slow to 2.7% this year and further to 2.1% next year. "Declining inflation provides room for an easing of interest rates, though monetary policy should remain prudent until inflation has returned to central bank targets," stated OECD Secretary-General Mathias Cormann.
"Decisive policy action is required to rebuild fiscal space by improving spending efficiency, reallocating spending to areas that better support opportunities and growth, and optimizing tax revenues."
The OECD warned that the impact of tight monetary policies on demand could be more substantial than anticipated, and deviations from the expected smooth disinflation path could disrupt financial markets.
Additionally, the think tank cautioned that ongoing geopolitical and trade tensions, such as Russia's invasion of Ukraine and conflicts in the Middle East, could drive inflation higher again, adversely affecting the global economy.
On a positive note, real wage growth could bolster consumer confidence and spending, while further declines in global oil prices would accelerate disinflation, according to the OECD.
Interest rate cuts by central banks should proceed as inflation and labor market pressures ease further. However, the timing and extent of these reductions will need to be data-dependent and carefully judged to ensure inflationary pressures are sustainably contained, the think tank added.
The OECD stated that the anticipated sharp slowdown in US growth is likely to be mitigated by monetary policy easing, maintaining the growth forecast for this year at 2.6%. The projection for next year has been lowered to 1.6% from 1.8% in May.
Eurozone growth is expected to be supported by a recovery in real incomes and improved credit availability. The growth forecast for this year remains at 0.7%, while next year's forecast has been slightly reduced to 1.3% from 1.5%.
The UK's growth forecast for this year has been significantly raised to 1.1% from 0.4%. The outlook for next year has also been revised up to 1.2% from 1.0%.
China's growth forecasts for both years remain at 4.9% and 4.5%, respectively. The OECD noted that additional policy stimulus is likely to be offset by subdued consumer demand and an ongoing deep correction in the real estate sector. India remains at the top of the growth chart, with projections showing the economy expanding by 6.7% this year and 6.8% next year, both higher than the 6.6% forecast made in May.
