The global economic outlook has improved from a few months ago as the inflation shock eases but rising interest rates will keep risks high, the OECD said yesterday, hiking its growth forecasts for major economies.
After growth last year of 3.2 per cent, the world economy is on course to expand 2.6pc as central bank tightening takes full effect, the Organisation for Economic Co-operation and Development said in its interim economic outlook.
The Paris-based organisation raised its forecast for global growth from 2.2pc in its last Economic Outlook in November, citing a decline in energy and food prices and China’s easing of its anti-Covid restrictions.
Looking to next year, global growth was expected to accelerate to 2.9pc – compared with a November forecast of 2.7pc – as the hit to household incomes from high energy prices faded.
The OECD forecast that inflation in the Group of 20 major economies would fall from 8.1pc last year to 5.9pc this year and further decline to 4.5pc in 2024 – still well above targets despite interest rate hikes by many central banks.
It said the full impact of higher interest rates was hard to gauge, warning that increased stress for borrowers could translate into losses for some banks, citing the recent collapse of Silicon Valley Bank in the US as an example.
Setting aside turmoil in financial markets following SVB’s failure and continued worries about Swiss lender Credit Suisse, the European Central Bank hiked interest rates by a further half percentage point on Thursday to fight inflation.
The OECD projected that central bank policy rates would peak at 5.25-5.5pc in the United States and 4.25pc in the euro area and Britain with a decline in inflation possibly allowing for a “mild” easing next year.
The OECD forecast that US economic growth would slow from 1.5pc this year to 0.9pc next year as higher interest rates cooled demand. With the US labour market holding up better than expected, the forecast for this year was up from 0.5pc in November and down from 1.0pc for 2024.
Boosted by the easing of anti-Covid measures, the Chinese economy was seen growing 5.3pc this year and 4.9pc in 2024, up from November forecasts for 4.6pc and 4.1pc respectively.
The outlook for the euro area had also improved thanks to a drop in energy prices with the 20-nation bloc expected to see growth this year of 0.8pc followed by 1.5pc in 2024. The OECD had previously forecast 0.5pc and 1.4pc growth respectively.