Growth in the global economy will remain anemic as rising interest rates squeeze business activity, while China’s recovery from the pandemic has proved weaker than expected, the Organization for Economic Cooperation and Development (OECD) announced on Tuesday.
In its latest Economic Outlook report, the OECD revised downwards its global economic forecast for 2024, expecting growth to slide to 2.7% next year, down by 0.2% from its June estimate, after an already “sub-par” expansion of 3% this year.
The world economy will face its weakest annual growth next year, excluding 2020, when Covid-19 struck, since the global financial crisis, the Paris-based organization predicted.
“While high inflation continues to unwind the world economy remains in a difficult place,” OECD chief economist Clare Lombardelli told reporters on Tuesday. “We’re confronting the double challenges of inflation and low growth.”
Interest-rate hikes aimed at curbing inflation are taking their toll and are expected to have a further negative impact on economies worldwide, the OECD warned. Meanwhile price growth shows little sign of easing, leaving “limited scope for any rate cuts until well into 2024.”
“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. “The impact of tighter monetary policy is becoming increasingly visible, business and consumer confidence have turned down, and the rebound in China has faded.”
The OECD also slashed its growth forecast for the euro area for this year and warned that Germany’s economy would contract by 0.2% in 2023. This would make the EU’s top economy the only G20 state except Argentina to face a recession.
A surge in oil prices has also fueled inflation in many countries, in particular those dependent on crude imports, Lombardelli said.
“Oil prices will continue to be potentially volatile through this period. That’s why we’ve highlighted it as one of the risks,” she noted. Crude prices have soared by 25% since May and will keep weighing on household budgets, the economist warned.
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