OECD raises 2023 U.S., global growth outlook, lowers 2024, expects inflation to persist
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(Kitco News) - The better-than-expected performance of the U.S. economy has helped boost global GDP projections for this year, but the staggering Chinese economy has worsened the economic outlook for 2024, the Organisation for Economic Cooperation and Development (OECD) said on Tuesday.
“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 wrote in their latest forecast. “The impact of tighter monetary policy is becoming increasingly visible, business and consumer confidence have turned down, and the rebound in China has faded.”
After enjoying a 3.3% growth rate in 2022, global gross domestic product is on course to expand by 3.0% this year, up from the 2.7% rate projected in the June outlook. However, global growth is now expected to slow to 2.7% in 2024, down from the 2.9% estimate published in the June forecast.
The U.S. economy is now expected to grow by 2.2% this year, significantly better than the 1.6% from the June report, with the OECD noting surprising resilience in the United States as it weathered an unprecedented series of rapid rate hikes. But U.S. growth is projected to slow to 1.3% next year “as tighter financial conditions moderate demand pressures,” which is still stronger than the 1.0% rate for 2024 expected in June.
According to the OECD, Chinese economic growth will be 5.1% this year, down from the 5.4% growth rate projected in June. “Growth in China is expected to be held back by subdued domestic demand and structural stresses in property markets,” the report said. They project growth of 4.6% for China in 2024, also lower than the 5.1% expectation in the June report. “A sharper-than-expected slowdown in China is an additional key risk that would hit output growth around the world,” they wrote.
The OECD also cut the euro zone's growth outlook for 2023 to 0.6%, down from 0.9% in June, and now projects next year’s growth rate at 1.1%, lower than the 1.5% projected in June “as the adverse impact of high inflation on real incomes fades.”
Turning to the inflation outlook, the OECD said that “Uncertainty about the strength and speed of monetary policy transmission and the persistence of inflation are key concerns,” and that “The adverse effects of higher interest rates could prove stronger than expected, and greater inflation persistence would require additional policy tightening that might expose financial vulnerabilities.”
The report noted that headline inflation is declining, “but core inflation remains persistent in many economies, held up by cost pressures and high margins in some sectors.”
“Inflation is projected to moderate gradually over 2023 and 2024, but to remain above central bank objectives in most economies,” they said. “Headline inflation in the G20 economies is projected to ease to 6% in 2023 and 4.8% in 2024, with core inflation in the G20 advanced economies declining from 4.3% this year to 2.8% in 2024.”
“Monetary policy needs to remain restrictive until there are clear signs that underlying inflation pressures have durably abated,” they wrote. “Policy interest rates appear to be at or close to a peak in most economies, including the United States and the euro area, with policy judgements more finely balanced as the effects of higher interest rates become visible.”
The OECD also noted that many governments are facing “mounting fiscal pressures from rising debt burdens and additional spending on ageing populations, the climate transition and defence,” and said that reviving global trade should be a “key priority” as it is “an important source of long-term prosperity for both advanced and emerging-market economies.”
They also urged countries to enhance international cooperation “to ensure better coordination and faster progress in carbon mitigation efforts.”