Achi news desk-
(Bloomberg) – The world economic outlook is improving as growth proves more resilient and inflation is set to cool earlier than expected in many countries, the OECD said.
While conflict in the Middle East or more steady price rises could catch the economy off its more stable footing, the Paris-based institute said risks are becoming “better balanced.”
The OECD raised its 2024 global growth forecast to 3.1% – from 2.9% in February – with notable improvements in its expectations for the US, China and India. The expansion should continue at 3.2% next year.
The brighter outlook shows that the world economy is trying to avoid falling into a spectacular trough – a period of sluggish growth and rising unemployment mixed with high inflation – even if the pace of expansion does not soon return to the an average of 3.4% in the years before the pandemic and energy crisis.
Inflation will be softer than the OECD forecast three months ago, except for the US, where it now expects prices to rise 2.5% this year instead of 2.2%. Still, he said US policymakers should be able to cut interest rates in the second half of the year.
On Wednesday in Washington, Federal Reserve Chairman Jerome Powell kept hopes alive for a rate cut in 2024 while acknowledging that a spotlight on inflation has reduced policymakers’ confidence that price pressures are ebbing.
The OECD’s assessment confirms the slightly more positive views of other international organisations, including the International Monetary Fund which also raised its forecasts last month.
Read More: Factories Around the World Are Slowing Down a Gear Again
“Cautious optimism has begun to take hold in the global economy, despite modest growth and the lingering shadow of geopolitical risks,” said OECD Chief Economist Clare Lombardelli. “Inflation is easing faster than expected, labor markets remain strong with unemployment at or near record lows.”
In the recovery, the OECD said the divergence between strong growth in the United States and more sluggish Europe will continue in the near term, creating a “mixed macroeconomic landscape.” That will translate into a different pace of interest rate cuts, with the European Central Bank set to start easing ahead of the Fed.
Still, the OECD said monetary authorities should be cautious because conflicts could push up energy prices and inflation, and the softening of cost pressures could also be slower than expected in services.
“Monetary policy needs to remain prudent to ensure that underlying inflationary pressures are continuously contained,” the OECD said.
For governments, he said the improving economic backdrop provides the opportunity to address inflated debt burdens that are at risk of swelling further as higher borrowing costs feed through. He also warned that countries will face increasing expenditure demands from aging populations, climate change and the need to boost defence.
“In the medium and long term, the financial situation is worrying,” said Lombardelli. “A robust medium-term approach is needed to contain spending, build revenues, and focus policy efforts on growth-enhancing structural reforms.”
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