🗞️Global GDP Expected to Hold Steady at 3.1% in 2023 and 2024
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The most recent Economic Outlook from the OECD predicts that the world economy will continue to grow modestly. According to the Economic Outlook, global GDP will grow steadily in 2024 at a rate of 3.1%, the same as in 2023, before slightly increasing to 3.2% in 2025.
Although there are still negative effects of tight monetary policy, especially in the housing and credit markets, overall activity is proving to be relatively resilient, inflation is still falling, and private sector confidence is rising.
In February, the OECD unemployment rate was 4.9%, which was almost at its lowest point since 2001. As trade growth has turned positive and inflation has moderated, real incomes are rising in many OECD countries. With weaker results in many advanced economies, especially in Europe, and strong growth in the US and many emerging market economies, the outlook for different countries is still uneven.
The OECD projects that headline inflation will progressively decrease from 6.9% in 2023 to 5.0% in 2024 and 3.4% in 2025, with the help of tight monetary policy and a slowdown in the price pressure on goods and energy. In most major economies, inflation is predicted to return to central bank targets by the end of 2025.
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The US GDP is expected to grow by 2.6% in 2024 and then 1.8% in 2025 as the country's economy adjusts to high borrowing costs and declining domestic demand. Following a period of stagnation in the fourth quarter of 2023, the euro area is expected to gradually recover thanks to a rise in real household incomes, competitive labour markets, and policy rate reductions. GDP growth in the euro area is anticipated to be 1.5% in 2025 and 0.7% in 2024.
It is anticipated that Japan's growth will gradually rebound, helped by stronger real wage growth, an ongoing accommodative monetary policy, and short-term tax cuts. The GDP is expected to increase by 1.1% in 2025 and by 0.5% in 2024.
With GDP growth of 4.9% in 2024 and 4.5% in 2025, China's economy is predicted to slow down somewhat because of exports and fiscal stimulus.
"The global economy has shown to be resilient, inflation has decreased to levels below central bank targets, and the outlook's risks are becoming more evenly distributed. OECD Secretary-General Mathias Cormann stated, "We anticipate stable global growth in 2024 and 2025, albeit growth will remain below its longer-term average." Policies must guarantee macroeconomic stability and enhance the prospects for medium-term growth. Fiscal policy must address growing pressures on debt sustainability, monetary policy should remain cautious with room to cut policy rates as inflation declines, and policy reforms should encourage investment, innovation, and job opportunities, particularly for women, young people, and older workers."
Many questions are still unanswered. Longer-term high inflation could result in slower-than-anticipated policy rate reductions and increased financial vulnerabilities. Possible reasons for China's growth disappointment could be lower-than-expected fiscal support over the next two years, or the country's real estate markets remaining weak. High levels of geopolitical tension continue to pose a serious short-term risk to inflation and activity, particularly in the event that the attacks in the Red Sea and the Middle East's evolving conflict expand or worsen. Positively, if businesses and households utilised the savings they had accumulated during COVID-19 to a larger extent than anticipated, demand growth might prove to be stronger than anticipated.
In light of this, the Outlook offers several policy suggestions, highlighting the necessity of ensuring a long-term decline in inflation, establishing a budgetary course that takes rising fiscal pressures into account, and putting reforms into action that enhance medium-term growth prospects.
To guarantee that inflationary pressures are managed in a way that is sustainable, monetary policy must continue to be cautious. In most major economies, the policy stance is likely to remain restrictive for some time, but there is room to reduce policy rates as inflation declines.
Governments are confronted with mounting fiscal challenges due to high debt levels, ageing populations, and the adaptation and mitigation of climate change. These factors also significantly increase spending pressures. If nothing is done, future debt loads are likely to increase dramatically, which emphasises the necessity of making more immediate efforts to reduce spending growth, enhance public spending efficiency, reallocate spending to areas that better support opportunity and growth, and maximise tax revenues.
"The foundations for future output and productivity growth need to be strengthened through ambitious structural policy reforms to improve human capital and take advantage of technological advances," said Clare Lombardelli, chief economist for the OECD
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