OECD Says Global Economic Growth Resilient Amid Declining Inflation

(RTTNews) - The Organization for Economic Cooperation and Development said on Wednesday that the global economic growth remained resilient, and inflation is declining though significant risks remain, as it nudged up the forecast for this year.

The Paris-based think tank forecast the global economy to grow 3.2 percent this year, which is slightly faster than the 3.1 percent predicted in May. The world economy grew 3.1 percent in 2023.

The projection for next year was retained at 3.2 percent.

Robust growth in trade, improvements in real incomes and a more accommodative monetary policy in many economies were the factors supporting the global growth, according to the OECD Interim Economic Outlook report.

OECD expects inflation in most G20 economies to return to central bank targets by the end of 2025. The organization raised the projection for headline inflation this year to 5.4 percent from 5.0 percent seen in May. The outlook for next year was lowered a tad to 3.3 percent from 3.4 percent.

Core inflation in the G20 advanced economies is projected to slow to 2.7 percent this year and further to 2.1 percent next year. "Declining inflation provides room for an easing of interest rates, though monetary policy should remain prudent until inflation has returned to central bank targets," OECD Secretary-General Mathias Cormann said.

"Decisive policy action is needed to rebuild fiscal space by improving spending efficiency, reallocating spending to areas that better support opportunities and growth, and optimizing tax revenues."

OECD warned that 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.

Further, lingering geopolitical and trade tensions such as the Russia's invasion of Ukraine and the Middle East conflicts, could push inflation higher again and thus hurt the global economy, the think tank cautioned.

Meanwhile, real wage growth could boost consumer confidence and spending more, and further weakness in global oil prices would hasten disinflation, the OECD said.

Interest rate cuts by central banks should continue at inflation and labor market pressures ease further, the OECD said. That said, the timing and the scope of reductions will need to be data-dependent and carefully judged to ensure inflationary pressures are durably contained, the think tank added.

The OECD said the expected sharp slowdown in the US growth is likely to be cushioned by the monetary policy easing and retained the forecast for this year at 2.6 percent. The projection for next year was lowered to 1.6 percent from 1.8 percent seen in May.

Eurozone growth is expected to be underpinned by the recovery in real incomes and improvement in credit availability. The euro area growth projection for this year was retained at 0.7 percent and the forecast for next year was lowered to 1.3 percent from 1.5 percent.

The U.K. growth forecast for this year was raised sharply to 1.1 percent from 0.4 percent. The outlook for next year was lifted to 1.2 percent from 1.0 percent.

China's growth projections for both years were retained 4.9 percent and 4.5 percent, respectively. Additional policy stimulus is likely to be offset by subdued consumer demand and the ongoing deep correction in the real estate sector, the OECD said. India remained at the top of the chart with OECD projections showing the economy growing 6.7 percent this year and 6.8 percent next. These were higher than the 6.6 percent forecast in May for both years.