OECD raises global growth forecast

The OECD has raised its global growth forecasts for 2023 and 2024 thanks to lower inflation and the reopening of China, but remains fragile, amid major difficulties encountered by some banks. World gross domestic product (GDP) is expected to increase by 2.6% in 2023, against 2.2% anticipated last November by the Organization for Economic Co-operation and Development (OECD), according to its outlook published on Friday. Last year, global growth was 3.2%.

In 2024, global growth is expected to accelerate to 2.9%, or 0.2 percentage points than previously forecast. Economies will, however, continue to suffer from the repercussions of interest rate hikes decided by central banks to fight inflation. More restrictive monetary policiesmay continue to expose financial vulnerabilities related to high leverage and overvaluation of certain assets“, as shown recently by the failure of three American banks, according to the report of the OECD. “Signs of the impact of tighter monetary policies have started to appear in parts of the banking sector, notably in regional banks in the United Statessays the Organization for Economic Co-operation and Development (OECD).

Concretely, “Sudden changes in market interest rates and the current market value of bond portfolios could also further highlight the duration risks inherent in the business models of financial institutions, as evidenced by the failure of the Silicon Valley Bank in march in the united states“. Despite these upheavals, the OECD believes that “monetary policies should remain tight until there are clear signs of a sustained reduction in underlying inflationary pressures“.

Also new rate hikes, like the one decided on Thursday by the European Central Bank (ECB), “are still needed in many economies, including the United States and the euro area“. The sharp drop this week in the share price of Credit Suisse, a much larger bank whose failure would pose systemic risk to the global economy, was not captured by the report.

Accumulated savings

Another Achilles’ heel for many countries is property prices, which have started to fall, with possible cascading effects on other sectors. But despite these risks, aprogressive improvementof the general economic situation is expected throughout 2023 and 2024, with some easing of inflation.

Global growth should also benefit fromthe full reopening of Chinapost-Covid, with the country’s activity expected to rebound in 2023. In the G20 countries, which represent some 85% of global gross domestic product (GDP), price increases are expected to decline from 8.1% in 2022 to 4, 5% in 2024, anticipates the OECD.

But the improvement in the economic situationremains fragile” with a “uncertainty surrounding the evolution of the war in Ukraine and its overall consequences is a matter of major concern“. The OECD has raised its outlook for 2023 for most of the world’s major economies, but lowered it for Japan, South Korea, Brazil, Argentina and Turkey.

Germany would now escape a recession for this year with growth of 0.3%, against 0.7% for France (+0.1 point compared to November). US growth is expected to reach 1.5% in 2023, against 0.5% previously forecast. And that of China would grow by 5.3%, against 4.6% expected in November, and India should have the strongest growth of the G20 with 5.9%.

“Demand should be preserved thanks to a further easing of savings rates for households that have not yet fully used the additional savings accumulated during the pandemic“, explains the institution. And in the face of soaring energy and food prices, the organization recommends that States provide aid “more targeted to those most in need“. Finally, with regard to energy, aid “should promote energy efficiencyto avoid subsidizing activities that are not sustainable in the medium term due to climate change.