The Organisation for Economic Co-operation and Development (OECD) yesterday slightly raised its growth outlook for the world economy as inflation eases and China has dropped COVID-19 restrictions, but it warned that the recovery faces a “long road.”
The Paris-based organization forecast an economic expansion of 2.7 percent, up from 2.6 percent in its previous report in March, with upgrades for the US, China and the eurozone.
It is still below the 3.3 percent growth recorded last year.
Photo: AFP
“The global economy is turning a corner, but faces a long road ahead to attain strong and sustainable growth,” OECD chief economist Clare Lombardelli wrote in the organization’s Economic Outlook. “The recovery will be weak by past standards.”
The growth forecast for next year remains unchanged at 2.9 percent, the report said.
A drop in energy prices, the untangling of supply chain bottlenecks and China’s sooner-than-expected reopening are contributing to the recovery, it said.
However, core inflation, which strips out volatile energy and food prices, is higher than previously expected, it said.
This might force central banks, which have already raised interest rates in efforts to tame consumer prices, to further hike borrowing costs, the OECD said.
“Central banks need to maintain restrictive monetary policies until there are clear signs that underlying inflationary pressures are abating,” Lombardelli said.
At the same time, the organization warned that higher interest rates around the world are “increasingly being felt,” notably in property and financial markets.
“Signs of stress have started to appear in some financial market segments as investors reassess risks, and credit conditions are tightening,” the report said.
The banking sector was rocked in March by the collapse of US regional lender Silicon Valley Bank, whose demise was partly blamed on high rates bringing down the value of its bond portfolio.
The crisis reverberated across the Atlantic, with the Swiss government forcing Swiss banking giant UBS Group AG to take over troubled rival Credit Suisse Group AG.
“Should further financial market stress arise, central banks should deploy financial policy instruments to enhance liquidity and minimize contagion risks,” Lombardelli wrote.
The OECD also warned that almost all countries have budget deficits and higher debt levels than before the COVID-19 pandemic as they propped up their economies to withstand the shocks of virus restrictions and Russia’s war in Ukraine.
“As the recovery takes hold, fiscal support should be scaled back and better targeted,” Lombardelli said.
As energy prices, which soared following the Russian invasion of Ukraine, fall further, governments should withdraw schemes aimed at supporting consumers, the OECD said.
The organization raised this year’s growth forecasts for the US to 1.6 percent and China to 5.4 percent — both an increase of 0.1 percentage points.
The eurozone also got a slight 0.1-point bump to 0.9 percent.
Britain was upgraded out of recession territory, with growth forecast at 0.3 percent instead of a contraction.
However, the OECD sharply lowered the outlook for Germany to zero growth, while Japan’s GDP is forecast to grow 1.3 percent, a slight downgrade.
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