The Organization for Economic Co-operation and Development (OECD) stated today that global economic growth will experience moderate improvement next year, despite being hindered by the effects of central bank interest rate hikes. The decline in inflation also dampened support, thereby influencing the economic outlook for 2023.
According to the OECD, the global economy is projected to grow by 2.7 percent this year, surpassing the previous forecast of 2.6 percent in March. This growth is partially attributed to the abandonment of China’s COVID-free policy. However, it still represents the lowest annualized rate since the 2008-2009 global financial crisis, except for the pandemic-hit year of 2020.
For the following year, growth is expected to slightly accelerate to 2.9 percent, which remains unchanged from the March forecasts. Private investment, particularly in the housing market, is further weighed down by the lasting impact of interest rate hikes implemented by major central banks last year.
In a similar vein, the World Bank also acknowledged the growing influence of rate hikes, adjusting its forecast for global growth this year to 2.1 percent but revising down the rate for 2024 to 2.4 percent from the previous estimate of 2.7 percent.
The recent significant decline in Chinese exports in May further indicates weakening global demand.
The OECD predicts that inflation among the 20 major economies will decrease from 7.8 percent last year to 6.1 percent this year and 4.7 percent in 2024, which still exceeds the targets set by many central banks, even in the face of interest rate increases.
The Federal Reserve is expected to reach its peak main interest rate of 5.25-5.5 percent soon, with a “modest” rate cut expected in the latter half of 2024.
In the euro area, the OECD foresees the European Central Bank continuing to raise interest rates due to persistent high core inflation, which is projected to peak in the third quarter. The ECB is expected to maintain its key interest rate at 4.25 percent until the end of 2024.
The Bank of Japan is anticipated to maintain its accommodative monetary policy with no rate increases until the end of 2024, while UK interest rates have reached their highest point since the second quarter of 2023.
The OECD expects the US economy to grow by 1.6 percent this year before slowing down to 1 percent in 2024, as the delayed effects of rate hikes have a significant impact on the world’s largest economy. Previously, the growth was forecasted at 1.5 percent for this year and 0.9 percent for 2024.
China’s economy is expected to grow by 5.4 percent in 2023 before declining to 5.1 percent in 2024. The previous projections were 5.3 percent and 4.9 percent, respectively, influenced by the lifting of COVID restrictions.
Simultaneously, with the decline in winter energy prices in Europe, the growth in the euro area is accelerating from 0.9 percent this year to 1.5 percent in 2024, as lower inflation has a diminished impact on earnings. In March, the OECD had projected growth of 0.8 percent in 2023 and 1.4 percent in 2024.
Likewise, the UK’s growth is expected to recover from 0.3 percent in 2023 to 1 percent in 2024, driven by an increase in real income growth. These figures mark an improvement from the March forecasts of -0.2 percent in 2023 and 0.9 percent in 2024.
Furthermore, Finance Minister Michael McGrath participated in an official visit to Paris, highlighting the OECD Council of Ministers meeting.
During the meeting, ministers from around the world engaged in discussions on various topics, including global economic trends, gender equality, cooperation with Ukraine, and support for economic recovery and resilience through trade policies that foster sustainable, inclusive growth.
In addition to the official discussions, Mr. McGrath held bilateral talks with OECD Secretary-General Mathias Cormann.
Michael McGrath emphasized Ireland’s significant role in the OECD and its influential work across various policy areas, such as the economy, taxes, development, and gender equality. He expressed anticipation for the OECD Council of Ministers meeting, recognizing it as an excellent opportunity to stay informed about the global economy and its latest developments and trends.
McGrath further mentioned the discussions on the OECD’s support for Ukraine, highlighting Ireland’s meaningful contribution, as well as the exchange of perspectives on trade policies that can promote sustainable and inclusive growth and overall economic resilience.
