The Organization for Economic Cooperation and Development (OECD) has announced that growth in the global economy will remain low due to rising interest rates squeezing business activity, and China’s recovery from the pandemic being weaker than anticipated. In its latest Economic Outlook report, the OECD has revised its global economic forecast for 2024, projecting growth to decrease to 2.7% next year, a 0.2% decrease from its previous estimate in June. This comes after a sub-par expansion of 3% this year.
The OECD predicts that the world economy will experience its weakest annual growth next year, excluding 2020 when the Covid-19 pandemic struck, since the global financial crisis. Clare Lombardelli, the chief economist of the OECD, stated that “While high inflation continues to unwind, the world economy remains in a difficult place. We’re confronting the double challenges of inflation and low growth.”
The OECD warned that interest rate hikes aimed at curbing inflation are taking a toll and are expected to have a further negative impact on economies worldwide. Additionally, there is little sign of easing price growth, which leaves limited room for any rate cuts until well into 2024.
The impact of tighter monetary policy is becoming increasingly visible, according to the OECD. Business and consumer confidence have declined, and the rebound in China has faded, despite a stronger-than-expected start to 2023 facilitated by lower energy prices and the reopening of China.
Furthermore, the OECD has reduced its growth forecast for the euro area for this year and has cautioned that Germany’s economy is expected to contract by 0.2% in 2023. This would make Germany the only G20 state, aside from Argentina, to face a recession.
Inflation has been fueled by a surge in oil prices in many countries, particularly those reliant on crude imports. Lombardelli highlighted the potential volatility of oil prices and the risks associated with it. Crude prices have risen by 25% since May and are expected to continue impacting household budgets.
This news from the OECD emphasizes the challenges facing the global economy, including the combination of low growth and high inflation. With interest rates rising and limited opportunities for rate cuts, businesses and consumers will face further difficulties. The weaker-than-expected recovery in China and the contraction of Germany’s economy add to the concerns about the global economic outlook.
It is important for policymakers and central banks to closely monitor the situation and implement appropriate measures to address these challenges. Failure to do so could prolong the period of low growth and inflationary pressures, further impeding the recovery of the global economy.
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