OECD Economic Outlook: Navigating Global Trends and Challenges

Euronews Business delves into the Organisation for Economic Co-operation and Development's (OECD) latest economic outlook report, offering insights into major global trends and prospects for the next two years. The report forecasts a complex economic environment with stronger-than-anticipated GDP growth in 2023 and a subsequent slowdown due to factors like tighter financial conditions, weak trade growth, and decreased business and consumer confidence.

Growth Projections and Uneven Performance: The OECD anticipates a soft landing for advanced economies globally, with a predicted easing of global growth to 2.7% in 2024, down from 2.9% in the current year, before rebounding to 3% in 2025. However, the pace of growth varies significantly, with advanced economies facing generally slower growth compared to emerging markets. Notably, Europe's performance lags behind that of North America and major Asian economies, presenting unique challenges for the continent.

Eurozone's Complex Recovery Path: Europe, influenced by high interest rates and the drag on incomes from increased energy costs, faces a challenging path to full economic recovery. The OECD projects a modest annual GDP growth of 0.5% for the last quarter of 2023 in the eurozone, with growth rates of 0.6%, 0.9%, and 1.5% forecasted for 2023, 2024, and 2025, respectively. The report notes the potential impact of tighter monetary policy in the bloc, raising concerns about its consequences on economic activity.

Inflation Dynamics and Concerns: While headline inflation has decreased globally in the past year, recent developments, including OPEC+ cuts and oil market disruptions, contribute to a clouded inflation outlook. Core inflation in G7 economies is estimated to have fallen below 3%, signalling a moderation from previous levels. The Eurozone, in particular, is expected to experience a slowdown in inflation to 2.9% in the coming year, down from 5.5% in the current year, with the European Central Bank's 2% target not anticipated until late 2025.

Labour Market and Housing Impacts: Unemployment rates across OECD countries remain low, with variations expected in different regions. While some countries, including the United States and the United Kingdom, may witness an increase in unemployment, Japan and the eurozone are expected to maintain low levels close to the current 6.5%. The tight labour market supports private consumption, but high interest rates are projected to weigh on private investment and real estate markets.

Geopolitical Risks and Global Trade Challenges: The report highlights the potential for a broadened conflict in the Middle East to overshadow global economic prospects. A wider conflict could disrupt energy markets, major trade routes, and financial markets, contributing to slowed growth and increased inflation. Additionally, the OECD emphasises the weakness in global trade, calling for multilateral cooperation to revive it, given its significance for productivity and development.

Policy Recommendations for Sustained Growth: To support long-term growth without compromising inflation control, the OECD recommends maintaining tight monetary policy until clear signs of inflation control emerge. Prudent fiscal policies are also urged, considering rising costs for governments to refinance debts amid additional spending on ageing populations, climate transition, and efense. The importance of clear spending and tax plans, coupled with accelerated progress towards decarbonisation, is emphasised to strengthen investment and mitigate future economic shocks.