With GDP growth holding up in the first half, inflation dropping, and monetary policy starting to ease, the global economy has likely turned the corner, says the Organization for Economic Cooperation and Development (OECD) in its latest forecast.
The Paris-based group expects global growth to come in at 3.2% this year and next, thanks to robust trade growth, rising real incomes and declining interest rates in many economies.
“Inflation is projected to be back to central bank targets in most G20 economies by the end of 2025,” it said, forecasting headline inflation for the G20 to decline from 5.4% this year to 3.3% in 2025, “with core inflation in the G20 advanced economies easing to 2.7% in 2024 and 2.1% in 2025.”
“Declining inflation provides room for an easing of interest rates, though monetary policy should remain prudent until inflation has returned to central bank targets,” said OECD secretary-general Mathias Cormann in a release.
For Canada, the OECD predicts just 1.1% growth this year, rising to 1.8% in 2025. It sees the U.S. slowing from 2.6% in 2024 to 1.6% next year.
In Europe, growth is projected at 0.7% in 2024 before picking up to 1.3% in 2025, “with activity supported by the recovery in real incomes and improvements in credit availability,” the OECD said.
China’s growth is expected to slow to 4.9% in 2024 and 4.5% in 2025, “with policy stimulus offset by subdued consumer demand and the ongoing deep correction in the real estate sector.”
Notwithstanding the relatively rosy outlook, the OECD also stressed that there are a variety of downside risks, including the lagging effects of restrictive monetary policy, intensified financial market volatility,and rising geopolitical and trade tensions.
There are upside risks too, including the prospect of strong wage growth spurring increased consumer spending and weaker global oil prices accelerating disinflation.
The OECD stressed that fiscal policy “needs to focus on containing spending growth and optimizing revenues, while credible medium-term adjustment paths would help stabilize debt burdens.”
“Governments also need to turn the corner on structural reforms,” said OECD chief economist Álvaro Santos Pereira in the release.
“The pace of regulatory reforms in recent years has been stalling, and in important parts of the economy reform progress came to a standstill. Amid sluggish productivity growth and tight fiscal space, product market reforms that promote open markets with healthy competitive dynamics remain a key lever to reinvigorate growth,” he added.
“Decisive policy action is needed to rebuild fiscal space by improving spending efficiency, reallocating spending to areas that better support opportunities and growth, and optimizing tax revenues,” Cormann said. “To raise medium-term growth prospects, we need to reinvigorate the pace of structural reforms, including through pro-competition policies, for example by reducing regulatory barriers in services and network sectors.”