According to Reuters, local time on September 19, the Organization for Economic Cooperation and Development (OECD) released an economic outlook report, the global economic growth is expected to be raised to 3.0% in 2023, the previous forecast of 2.7%; 2024 is expected to be lowered to 2.7%, the previous forecast of 2.9%.
The report said the global economy was stronger than expected in the first half of 2023, but the growth outlook is weak and there are significant downside risks. Headline inflation has been declining as energy and food prices have fallen, but remains above the target levels of many central banks, the report noted, and core inflation has yet to slow significantly, with inflation risks expected to persist, requiring multiple central banks to maintain restrictive monetary policy stances.
Although interest rate hikes have yet to significantly dampen inflation, the OECD emphasizes that monetary policy is beginning to affect national economies. The rapid rise in policy rates has been accompanied by a rise in interest rates on new business loans and new mortgages. Rising borrowing costs are weighing on households and businesses, but dampening household and business demand by raising borrowing costs is the standard channel through which monetary policy usually works.
The report suggests that monetary policy needs to remain restrictive until there are clear signs of a sustained reduction in underlying inflationary pressures. In most advanced economies, this is likely to limit the scope for policy rate cuts until 2024. Where underlying inflationary pressures are particularly persistent, further increases in interest rates may still be needed, but policy rates appear to be at or near their peaks in most economies. In the event of additional financial market stress, the financial policy tools available to central banks should be fully utilized to enhance liquidity and minimize the risk of contagion.
On the fiscal policy side, recent efforts to rebuild fiscal space and ensure debt sustainability should be strengthened and would conserve scarce resources, meet future policy priorities and respond effectively to future shocks. It would also reduce the burden on monetary policy in reducing demand pressures and inflation.
Looking at the performance of individual economies, the report forecasts that the US economy will grow by 2.2% in 2023, with growth slowing to 1.3% in 2024; in the eurozone, where demand is subdued, economic growth will slow to 0.6% in 2023, before picking up to 1.1% in 2024, as the adverse effects of high inflation on real incomes fade; and China's economic growth is forecast to be 5.1% in 2023 and 4.6% in 2024. In addition, the report raised Japan's economic growth forecast to 1.8% in 2023 and lowered the growth forecast to 1.0% in 2024; Germany's economic growth forecast was lowered to a contraction of 0.2% in 2023 and to a growth of 0.9% in 2024.
OECD Secretary-General Mathias Coleman said the global economy continues to be challenged by high inflation, sluggish growth and relatively weak trade. To lay the foundations for stronger and more sustainable long-term growth, countries need to take policy action to accelerate investment in low-carbon research and development and to further reduce, rather than increase, trade barriers.