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OECD’s Global growth outlook
Context
As per the Organisation for Economic Development (OECD) forecast, a stronger than expected U.S. economy is helping to keep a global slowdown in pace for year 2023, but a weakening Chinese economy will prove to be a bigger drag for global economy for 2024.
About the forecast:
- The OECD forecast that the Chinese economy would slow from 5.1% this year to 4.6% next year as momentum from the end of COVID restrictions fades and the property market struggles.
- In June, the OECD had forecast 5.4% growth this year and 5.1% next year.
- Though the growth outlook for next year would mostly be weak, the OECD said central banks should keep interest rates high until clear signs inflationary pressures have subsided.
The Economic growth for 2023-24:
- Global GDP growth in 2023 is projected to be 2.7%, the lowest annual rate since the global financial crisis, with the exception of the 2020 pandemic period.
- A modest improvement to 2.9% is foreseen for 2024.
- Annual OECD GDP growth is projected to be below trend in both 2023 and 2024, although it will gradually pick up through 2024 as inflation moderates and real incomes strengthen.
What should governments do?
- Maintain restrictive monetary policy to combat inflation: Monetary policy needs to remain restrictive until there are clear signs that underlying inflationary pressures are durably reduced. This may require additional interest rate increases in economies in which high core inflation is proving persistent.
- Phase out and target fiscal support: With global food and energy prices having declined and minimum wages and welfare benefits having increased to take account of past inflation, fiscal support to mitigate the cost of living crisis should increasingly become targeted toward vulnerable households inadequately covered by the general social protection system.
- Prioritize pro-growth spending and supply-boosting structural reforms: Public debt levels and budget deficits are high. Many also face rising future spending pressures from ageing populations, the green transition and higher interest payments on public debt. These pressing future challenges and the longer-term decline in trend growth rates point to a need for ambitious supply-boosting structural reforms and prioritising pro-growth public spending.
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