The Organisation for Economic Co-operation and Development (OECD) has released fresh forecasts indicating a slight improvement in the global growth outlook. Primarily driven by better prospects for the U.S. economy, the OECD now predicts global gross domestic product (GDP) to rise by 2.9% in 2024, up from its previous forecast of 2.7% made in November. However, this growth rate represents a slowdown from the 3.1% recorded in 2023. The forecast for 2025 remains unchanged at 3.0%.
Moderation of Growth and Subdued Global Trade
According to the report, recent indicators suggest a moderation of growth. Tighter financial conditions continue to impact credit and housing markets, while global trade remains subdued.
U.S. Economy Expected to Perform Well
Based on nation-specific predictions, the OECD expects the U.S. GDP to rise by 2.1% in 2024, surpassing its previous forecast of 1.5% in November. This improvement is attributed to strong labor-market conditions and increased household spending.
Eurozone Growth Outlook Falls Short
In contrast, the OECD expects eurozone growth to be at just 0.6%, significantly lower than the previous forecast of 0.9% in November. Tight credit conditions are expected to hinder growth in the near term. However, the eurozone’s growth is predicted to pick up as real incomes strengthen.
While the global growth outlook has slightly improved, various factors such as tight financial conditions and subdued global trade continue to impact economic performance. The U.S. economy is expected to fare better than previously anticipated, while the eurozone faces challenges due to tight credit conditions.
Economic Outlook for 2024-2025
The latest economic forecasts suggest a downward revision for Germany’s GDP growth in 2024. Previously projected at 0.6% in November, it has now been adjusted to 0.3%. This places Germany as one of the countries with the weakest growth prospects for the year, alongside Argentina.
Meanwhile, France’s GDP increase is forecasted at 0.6%, slightly lower than the previous estimate of 0.8% in November. Italy, on the other hand, maintains its growth forecast at 0.7%. The United Kingdom remains consistent with its projected growth of 0.7% in 2024.
Outside of the United States, Russia stands out with a notable upward revision to its GDP forecast. The OECD predicts a rise of 1.8% in 2024, up from the previous estimate of 1.1%. China’s growth forecasts remain unchanged at 4.7%.
Inflation is expected to return to target levels in most industrialized nations by the end of 2025. However, the OECD cautions that it is still too early to confirm whether underlying price pressures are fully contained. The organization projects a decline in headline inflation among G20 economies, from 6.6% in 2024 to 3.8% in 2025.
The OECD also highlights geopolitical disruptions as a potential risk to economic activity and inflation, particularly if conflicts in the Middle East were to disrupt energy markets. Recent attacks on ships in the Red Sea have already led to an increase in shipping costs and delivery delays, which have further disrupted production schedules and heightened price pressures.
Another factor that could impact economic growth is the lingering effects of central bank interest rate rises. If these effects are stronger than anticipated, it could result in weaker growth. The report suggests that while there may be room for rate cuts as inflation slows, most major economies should maintain a restrictive policy stance for the foreseeable future.
Overall, the economic outlook for 2024-2025 presents a mixed picture, with several countries experiencing downward revisions in their growth forecasts. However, there are also positive developments, such as the upward revision for Russia’s GDP and the expectation of inflation returning to target levels in most industrialized nations.
Sources: OECD Economic Forecast Report