The world’s advanced economies are heading into a soft landing, the Organisation for Economic Cooperation and Development (OECD) said on Wednesday.
The global economy is grappling with inflation, slowing growth, and mounting fiscal pressures.
Global growth is projected to be 2.9% in 2023, and weaken to 2.7% in 2024.
As inflation abates further and real incomes strengthen, the world economy is projected to grow by 3% in 2025.
Global growth remains highly dependent on fast-growing Asian economies, according to a Wednesday outlook from the Organization for Economic Cooperation and Development.
The OECD said in a statement, “Global GDP growth is projected to ease to 2.7% in 2024, from 2.9% this year, before edging up to 3% in 2025 as real income growth recovers and policy interest rates start to be lowered.”
GDP growth in the United States is projected at 2.4% in 2023, before slowing to 1.5% in 2024, and then picking up slightly to 1.7% in 2025 as monetary policy is expected to ease.
In the euro area, which had been relatively hard hit by Russia’s war of aggression against Ukraine and the energy price shock, GDP growth is projected at 0.6% in 2023, before rising to 0.9% in 2024 and 1.5% in 2025.
China is expected to grow at a 5.2% rate this year, before growth drops to 4.7% in 2024 and 4.2% in 2025 on the back of ongoing stresses in the real estate sector and continued high household saving rates.
“In many countries, fiscal pressures are mounting. Demographic changes, decarbonisation, and a combination of rising interest payments and slow growth mean countries face a challenging fiscal outlook. Governments need to take bold action to reduce such pressures and give a greater focus to growth in their policy making,” OECD Chief Economist Clare Lombardelli pointed out.
In the absence of further large shocks to food and energy prices, projected headline inflation is expected to return to levels consistent with central bank targets in most major economies by the end of 2025.
Annual OECD headline inflation is expected to fall gradually to 5.2% and 3.8% in 2024 and 2025 respectively, from 7.0% in 2023.
Growth in the major European economies, which have been relatively hard-hit by the energy price shock in 2022 and the war in Ukraine, OECD said, is expected to remain weak in the near term but improve gradually as inflation wanes, monetary policy easing gets underway and real incomes recover.
In the United States and Canada, domestic demand growth is expected to moderate until mid-2024 due to tighter monetary and financial conditions, with slower job growth and a mild pick-up in unemployment.
Furthermore, financial stresses in China’s large property sector threaten to diminish its economic growth by more than expected and potentially trigger additional financial distress.
The OECD warns that the property crisis could have a larger and longer-lasting impact on the Chinese economy than projected.
