OECD warns of continued global economic difficulties

The OECD raised its GDP forecast for this year but warned that the world economy is at risk of slowing down due to interest rate pressure and China's weak recovery.

The Organization for Economic Cooperation and Development (OECD) has just released its latest forecast for global GDP in 2023 at 3%, up 0.3 percentage points from the previous forecast. However, this is still a "below average" result, marking the lowest annual growth since the global financial crisis (2008-2009), except for 2020 affected by Covid-19.

At the same time, the OECD lowered its growth forecast for next year by 0.2 percentage points to 2.7%. Clare Lombardelli, chief economist of the OECD, assessed that inflation continued to fall but the world economy was still in a difficult situation. "We are facing a dual challenge of inflation and low growth," he said on September 19.

The Paris-based group said the risks are tilted to the downside, as past rate hikes could be more severe than expected and inflation risks persisting, requiring further monetary tightening. It sees China’s troubles as the “main risk” to global output.

Employees work at the Porsche factory in Stuttgart-Zuffenhausen, Germany, February 19, 2019. Photo: Reuters — Employees work at the Porsche factory in Stuttgart-Zuffenhausen, Germany, February 19, 2019. Photo: *Reuters*

After a stronger-than-expected start to 2023 – helped by lower energy prices and China's reopening – global growth is now expected to moderate, the OECD said. "The effects of monetary tightening are becoming more apparent, business and consumer confidence are weakening, and the recovery in China is fading," it said.

Looking at the regional and national outlook, the OECD cut its forecasts for eurozone growth this year and next to 0.6% and 1.1%, respectively. It forecast a 0.2% contraction in Germany this year, making it the only G20 country (except Argentina) to be in recession. US growth will slow to 1.3% in 2024, from 2.2% this year.

China's growth forecast for next year was also cut to 4.6% due to weak domestic demand and stress in the property market. The OECD said the scope for policy support in the country is likely to be more limited than before. GDP growth in the world's second-largest economy in 2023 could reach 5.1%, down 0.3 percentage points from the OECD's previous forecast.

The organization recommends that governments should not intervene with additional spending to boost growth. Instead, they should scale back support to facilitate future reinvestment and avoid stimulating inflation.

For central banks, the gloomy outlook continues to pose challenges as the fight against inflation continues to weigh on the economy and politicians worry that business activity is increasingly being squeezed.

The European Central Bank raised interest rates for the 10th time in a row last week, although it signaled it may have reached a peak. The US Federal Reserve is expected to leave interest rates unchanged on Wednesday (September 20).

The OECD warned against monetary easing, as core inflation remains stubbornly high in many countries, even as headline inflation falls. It said there was little room for interest rate cuts until the end of 2024. "Monetary policy should remain restrained until there are clear signs that underlying inflation pressures have abated in a sustained manner," the OECD advised.

Phien An ( according to Bloomberg )

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