Global economy improves, inflation dips, trade growth builds up: OECD

With robust growth in trade, improvements in real incomes and a more accommodative monetary policy in many economies, the Outlook projects global growth persevering at 3.2 per cent in 2024 and 2025, after 3.1 per cent in 2023.

Inflation is projected to be back to central bank targets in most G20 economies by the end of 2025.

Headline inflation in the G20 economies is projected to ease to 5.4 per cent this year and 3.3 per cent in 2025, down from 6.1 per cent in 2023, with core inflation in the G20 advanced economies easing to 2.7 per cent in 2024 and 2.1 per cent in 2025.

GDP growth in the United States is projected to slow from its recent rapid pace, but to be cushioned by monetary policy easing, with growth projected at 2.6 per cent in 2024 and 1.6 per cent in 2025.

In the euro area, growth is projected at 0.7 per cent in 2024, before picking up to 1.3 per cent in 2025, with activity supported by the recovery in real incomes and improvements in credit availability.

China’s growth is expected to ease to 4.9 per cent in 2024 and 4.5 per cent in 2025, with policy stimulus offset by subdued consumer demand and the ongoing deep correction in the real estate sector.

“The global economy is starting to turn the corner, with declining inflation and robust trade growth. At 3.2 per cent, we expect global growth to remain resilient both in 2024 and 2025,” OECD secretary general Mathias Cormann said in a release.

“Declining inflation provides room for an easing of interest rates, though monetary policy should remain prudent until inflation has returned to central bank targets. Decisive policy action is needed to rebuild fiscal space by improving spending efficiency, reallocating spending to areas that better support opportunities and growth, and optimising tax revenues,” he said.

“To raise medium-term growth prospects, we need to reinvigorate the pace of structural reforms, including through pro-competition policies, for example by reducing regulatory barriers in services and network sectors,” he added.

The Outlook highlights a range of risks. The impact of tight monetary policy on demand could be larger than expected, and deviations from the expected smooth disinflation path could trigger disruptions in financial markets.

Persisting geopolitical and trade tensions, including from Russia’s war of aggression against Ukraine and evolving conflicts in the Middle East, risk pushing up inflation again and weighing on global activity.

On the upside, real wage growth could provide a stronger boost to consumer confidence and spending, and further weakness in global oil prices would hasten disinflation, said the report.

As inflation moderates and labour market pressures ease further, monetary policy rate cuts should continue, even though the timing and the scope of reductions will need to be data-dependent and carefully judged to ensure inflationary pressures are durably contained.

Fibre2Fashion News Desk (DS)