PARIS (AFP) – The Organisation for Economic Co-operation and Development (OECD) slightly raised its growth outlook for the world economy yesterday as inflation eases and China dropped Covid restrictions, but it warned the recovery faces a “long road”.
The Paris-based organisation forecast an economic expansion of 2.7 per cent, up from 2.6 per cent in its previous report in March, with upgrades for the United States (US), China and the eurozone.
But it is still under the 3.3 per cent growth recorded in 2022.
The growth forecast for 2024 remains unchanged at 2.9 per cent, the OECD said.
A drop in energy prices, the untangling of supply chain bottlenecks and China’s sooner-than expected re-opening are contributing to the recovery, the OECD said.
Among its 38 members – an eclectic group ranging from the US to Germany, Mexico, Japan and New Zealand – inflation is expected to slow to 6.6 per cent this year, after soaring to 9.4 per cent in 2022.
But core inflation, which strips out volatile energy and food prices, is higher than previously expected, according to the OECD.
The international organisation said this may force central banks, which have already raised interest rates in efforts to tame consumer prices, to further hike borrowing costs.
The OECD warned that higher interest rates around the world are “increasingly being felt”, notably in property and financial markets.
“Signs of stress have started to appear in some financial market segments as investors reassess risks, and credit conditions are tightening,” the report said.
The banking sector was rocked in March by the collapse of US regional lender SVB, whose demise was partly blamed on high rates bringing down the value of its bond portfolio.
The crisis reverberated across the Atlantic, with the Swiss government forcing Swiss banking giant UBS to take over troubled rival Credit Suisse.
The OECD also warned that almost all countries have budget deficits and higher debt levels than before the pandemic as they propped up their economies to withstand the shocks of Covid restrictions and the situation in Ukraine.
As energy prices fall further, government should withdraw schemes aimed at supporting consumers, the OECD said.
The OECD raised its 2023 growth forecasts for the US to 1.6 per cent and China, the second biggest, to 5.4 per cent – both an increase of 0.1 percentage points.
The eurozone also got a slight 0.1-point bump to 0.9 per cent.
Britain was upgraded out of recession territory, with growth now forecast at 0.3 per cent instead of a contraction.
The OECD, however, sharply lowered the outlook for Germany, with zero growth now expected for Europe’s economy while Japan’s GDP will grow 1.3 per cent, a slight downgrade.
