ALBAWABA – Global economic growth will pick up pace in 2023 but will slow down next year, as 2024 will be economically painful, the Organisation for Economic Co-operation and Development (OECD) reported on Tuesday.
The OECD raised its global economic outlook for 2023 but cut the growth forecast for next year as "painful" interest-rate hikes aimed at curbing inflation take their toll.
The world economy is now expected to grow 3.0 percent this year, up from the 2.7 percent forecast in the June outlook, according to Agence France-Presse (AFP).
However, the organization said global growth was projected to remain "sub-par", slowing to 2.7 percent in 2024 – down from 2.9 percent in the previous forecast.
2024 will be economically painful as rate hikes worldwide seep into the economies - Shutterstock
"After a stronger-than-expected start to 2023, helped by lower energy prices and the reopening of China, global growth is expected to moderate," the OECD said in its report.
"The impact of tighter monetary policy is becoming increasingly visible, business and consumer confidence have turned down, and the rebound in China has faded," it added.
According to Bloomberg, the Paris-based organization warned that past rate hikes could yet have a stronger impact than expected and inflation may prove persistent, which could require more hikes. The report referred to China’s struggles as a “key risk” for output around the world.
Central banks worldwide have sharply increased borrowing costs in an effort to tame runaway inflation and consumer prices, which soared in the wake of Russia's invasion of Ukraine last year.
"We are all seeing the tightening of monetary policy working its way through our economies. This is necessary to reduce inflation, but it is painful," OECD chief economist Clare Lombardelli said at a press conference, as reported by AFP.
"Inflation is projected to moderate gradually over 2023 and 2024 but to remain above central bank objectives in most economies," the OECD said.
2024 will be economically painful as delinquencies rise
Inflation remains well above the two-percent targets of the Fed and ECB, and those of most central banks around the world. Meanwhile, oil prices are skyrocketing in recent weeks, which is a main driver of inflation.
"Even if policy rates are not raised further, the effects of past rises will continue to work their way through economies for some time," the OECD said.
2024 will be economically painful, especially if oil prices continue to rise - Shutterstock
Borrowing costs for companies and households have risen, while credit conditions have already tightened. "Some countries are already seeing rising loan and credit card delinquency rates and increases in corporate insolvencies," the organization reported.
Meanwhile, the crisis within the regional US banks segment in March and the fire sale of European banking giant Credit Suisse both indicate that "risks remain" that higher rates could "produce stresses in the financial system", the report warned.
2024 will be economically painful especially as China’s sluggish recovery loses steam
Furthermore, "a sharper-than-expected slowdown in China is an additional key risk that would hit output growth around the world".
The world's second-biggest economy has been struggling in 2023 after three years of Covid restrictions and massive debt in the property sector.
The OECD cut its outlook for China’s growth in 2023 and 2024 to 5.1 percent and 4.6 percent, respectively, 0.5 percentage points lower than previously forecast.
As for the world's biggest economy, the United States, the OECD noted that US growth would slow from 2.2 percent in 2023 to 1.3 percent in 2024.
2024 will be economically painful, and more so with China's economic recovery faltering - Shutterstock
Although the US economy "has so far proved unexpectedly resilient to the steep rise in policy interest rates", the effects of tighter financial conditions "are expected to become increasingly visible".
The organisation lowered its forecasts for the Eurozone to 0.6 percent this year and 1.1 percent in 2024 as the German economy struggles.
Elsewhere, Japan's growth outlook was raised by 0.5 percentage points to 1.8 percent for 2023 but lowered by 0.1 points to 1.0 percent for 2024 from previous forecasts.
The organization warned against governments stepping in with extra spending to perk up growth, Bloomberg reported. Instead, it said support should be scaled back to rebuild room for future investment challenges and avoid stoking the inflation central banks want to contain.
