OECD Economic Outlook: Global Growth Projected to Remain Resilient Despite Inflation Challenges

The latest economic forecast from the Organization for Economic Cooperation and Development (OECD) predicts sustained global economic growth, although the pace of growth remains uneven across countries and regions, and inflation remains above target.

The outlook projects global GDP growth of 2.9% in 2024, with a slight increase to 3.0% in 2025. These figures align with OECD's previous projections in November 2023.

Meanwhile, Asia is expected to continue to contribute the most to global growth in 2024-2025, as was the case in 2023.

On the other hand, inflation is expected to gradually decline as cost pressures ease. General inflation in G20 countries is projected to decrease from 6.6% in 2024 to 3.8% in 2025. Core inflation in G20 advanced economies is forecasted to decrease again to 2.5% in 2024 and 2.1% in 2025.

"The global economy has shown real resilience amid high inflation over the past two years and the need for monetary policy tightening. Growth remains resilient, and we expect inflation to return to central bank targets by the end of 2025 in most G20 countries," said OECD Secretary-General Mathias Cormann, as quoted on Tuesday (2/6/2024).

"Monetary policy must remain cautious, although central banks may begin to lower interest rates this year, provided inflation continues to decline. Fiscal policy must rebuild fiscal space, through stronger efforts to restrain spending growth. In parallel, we need to work together to revive trade, enhance supply chain resilience, and address common challenges, especially climate change," he added.

Regarding growth, the United States (US) is projected to grow by 2.1% in 2024 and 1.7% in 2025. This projection is supported by consumers continuing to spend their savings during the Covid-19 pandemic and easier financial conditions.

In Europe, GDP growth is forecasted to be 0.6% in 2024 and 1.3% in 2025. However, activity is predicted to remain weak in the near term amid tight credit conditions before picking up as real incomes strengthen.

Japan is projected to grow by 1.0% in both 2024 and 2025, mainly driven by private consumption and business investment. China is expected to grow by 4.7% in 2024 and 4.2% in 2025, reflecting weak consumer demand and structural pressures in the property market.

Additionally, the OECD Outlook also highlights several challenges. The organization notes that geopolitical tensions remain a major source of uncertainty and are increasing due to escalating conflicts in the Middle East.

Threats to shipping in the Red Sea have also increased shipping costs and extended supplier delivery times. If continued, these factors would lead to new price pressures in the goods sector and increased risks.

OECD estimates show that a doubling of shipping costs, if sustained, would add 0.4 percentage points to consumer price inflation in the OECD after about one year.

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