The Organization for Economic Co-operation and Development (OECD) recently announced its outlook for this year, saying the global economy is on track to grow better than expected at 2.9 percent. The forecast is in stark contrast to its outlook a few months ago.
OECD says strong improvements in the United States will offset weakness in the eurozone. However, it warned that tensions in the Middle East represent a danger, as disruption in the Red Sea threatens the prices of consumer goods.
Geopolitical tensions
The OECD said that geopolitical tensions pose a significant risk to economic activity and inflation rates in the near future. In addition, the expansion or escalation of the conflict could lead to the disruption of shipping and energy supplies on a broader scale. If the conflict extends, supply will decrease, which will push energy prices to rise if traffic from the Middle East to Asia, Europe, and America stops.
The OECD also explained that these tensions led to a sharp rise in shipping costs and delayed the delivery of goods. Therefore, companies redirected their ships towards South Africa, which extended the duration of their trips by up to 50 percent. Moreover, the OECD added that production schedules faced disruption in Europe, especially for car manufacturers.
Moderate growth
The OECD announced that its indicators show moderate economic growth. This comes in light of high interest rates affecting lending and real estate markets. Furthermore, global trade remains weak. In addition, inflation rates are expected to fall this year to 2.3 percent in the United States, 2.6 percent in the eurozone, and 3.6 percent in Britain. Although inflation is declining in major economies, it is still too early to determine whether underlying price pressures have been fully contained.
According to experts’ estimates, the OECD expects global economic growth to slow from 3.1 percent in 2023 to 2.9 percent this year. These estimates are more accurate compared to last November’s forecasts, which stated that the growth rate would be 2.7 percent. However, despite raising its global outlook, the OECD kept its estimate for global growth in 2025 at 3.0 percent. This is due to expectations that major central banks will reduce interest rates as inflationary pressures ease.
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Major economies
The OECD raised its forecast for U.S. economic growth in 2024 to 2.1 percent from 1.5 percent in the previous forecast. However, it did not change its outlook for 2025 at 1.7 percent.
It also maintained its outlook for the Chinese economy at 4.7 percent in 2024 compared to 5.2 percent in 2023, and to 4.2 percent in 2025. This comes amid fluctuations in China’s real estate market and weak consumer confidence.
As for the eurozone, the OECD lowered its growth forecast for the region from 0.9 percent in its previous forecast to 0.6 percent. It also lowered its growth forecast for the region in 2025 from 1.5 percent to 1.3 percent.
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