Mathias Cormann (R), Secretary-General of the Organization for Economic Co-operation and Development, expressed cautious optimism Wednesday that the global economy has turned a corner, but warned policymakers that they must “sustainably reduce inflation to target and withdraw broad fiscal support, with more targeted fiscal measures”. Photo by Ian Langsdon/EPA-EFE/Pool
June 7 (UPI) — The Organization for Economic Cooperation and Development predicted Wednesday that while the global economy has bottomed out, its recovery is likely to be weak.
The group’s latest economic outlook predicts growth will continue to slow to 0.6% this year from 3.3% in 2022, before picking up slightly to 2.9% next year.
“Falling energy prices and headline inflation, declining supply bottlenecks and China’s economic recovery, combined with strong employment and relatively resilient household finances, are all contributing to the projected recovery.” Nevertheless, the recovery will be weak by past standards,” the report said. .
US growth will continue to slow to 1.6% in 2023 due to tight monetary and financial conditions. and 1% in 2024, while higher real incomes due to lower headline inflation in the euro area will support GDP growth from 0.9% in 2023. to 1.5% in 2024
“Policymakers need to steadily reduce inflation to target and unwind broad fiscal support through more targeted fiscal measures.” As we continue to respond to the immediate economic challenges, it is still important to prioritize structural reforms to increase productivity, including promoting competition, reviving investment, increasing. women’s labor force participation and reducing supply constraints, while ensuring a green and digital transformation of our economies,” said OECD Secretary-General Mathias Cormann.
The report said some of the factors weighing on growth are now easing, the global economy is at a tipping point, but there is a “long way to go” to achieve strong and sustainable growth.
The OECD called on policymakers in its 38 member countries to take decisive action on macroeconomic and structural policies to ensure stronger and more sustainable growth despite “stubbornly” high core inflation, high debt levels and weak output.
Its main recommendations include tackling inflation head-on without cutting interest rates too soon; targeting universal cost of living support programs to the most vulnerable; and prioritizing growth-promoting fiscal spending and supply-side reforms.
“Fiscal policy should prioritize productivity-enhancing public investments, including those that drive the green transition and increase labor supply and skills,” said OECD Chief Economist Clare Lombardelli.
“Renewed reform efforts to ease constraints on labor and product markets and revive private investment and productivity growth would improve sustainable living standards and strengthen the recovery from the current sluggish growth outlook.”
While the OECD acknowledged that it had to move away from restrictive monetary policy to curb inflation and make room for growth, the OECD said policymakers should be wary of financial market vulnerabilities from rising interest rates, as evidenced by the turmoil in the banking sector around the world in recent months.
Policymakers need to be “cautious given the uncertainty about the precise impact of a swift and globally coordinated monetary tightening” after 15 years of low interest rates.
The report says clear communication is critical to avoid confusion over the potential conflict between the pursuit of price stability and financial stability mandates, and central banks should use financial policy tools to boost liquidity and reduce contagion risks in the event of further financial market stress.
The OECD forecast is in stark contrast to the World Bank’s latest forecast on Tuesday, which forecast global growth to slow sharply to 2.1% this year and 2.9% in emerging markets and developing countries excluding China.