OECD upgrades global economic growth forecasts to 3.1 percent in 2024

Core inflation to fall to 5.25 percent in 2024 and 3.43 percent in 2025
OECD upgrades global economic growth forecasts to 3.1 percent in 2024
The OECD states that AI has the potential to revive global economic growth and productivity

The global economic growth outlook has started to brighten despite the impact of tighter monetary conditions. Global activity is proving relatively resilient, inflation is falling faster than initial projects and private sector confidence is improving. In its latest economic outlook report, the Organisation for Economic Cooperation and Development (OECD) reveals that global economic growth will remain at 3.1 percent this year and pick up to 3.2 percent in 2025. In its February forecasts, the OECD had projected growth of 2.9 percent this year and 3 percent in 2025.

Inflation falls closer to target

Headline inflation fell rapidly in most economies during 2023 due to restrictive monetary policies, lower energy prices, and easing of supply chain pressures. Food price inflation also declined sharply in most countries as key crops such as wheat and corn saw prices decline significantly from 2022. The OECD also reveals that core goods price inflation saw a steady decline. However, service price inflation remained well above pre-pandemic levels in most countries.

In addition to positive global economic growth, the report forecasts a decline in headline inflation to 5.03 percent in 2024 and 3.43 percent in 2025. As for core inflation, the OECD expects it to fall to 5.25 percent in 2024 and 3.43 percent in 2025.

Resilience of U.S. and China

Amidst the global economic landscape, the OECD underscores the resilience and growth of the United States and China. It expects both countries to outperform previous growth projections.

The U.S. economy sees its growth forecast increase to 2.6 percent for the current year, a significant hike from the previous estimate of 2.1 percent. Similarly, the OECD revised China’s growth outlook upwards, with forecasts indicating a robust expansion of 4.9 percent in 2024 and 4.5 percent in 2025, compared to earlier projections of 4.7 percent and 4.2 percent respectively.

Eurozone and Japan outlook

While the eurozone grapples with lingering sluggishness, particularly due to weakness in Germany, the OECD anticipates a pickup in growth for the bloc. Forecasts suggest eurozone growth to accelerate from 0.7 percent in 2024 to 1.5 percent in 2025 due to lower inflation levels and the potential for rate cuts. In Japan, income gains, accommodative monetary policy, and temporary tax cuts should fuel growth, with projections increasing to 0.5 percent in 2024 and 1.1 percent in 2025, compared to earlier forecasts of 1 percent.

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AI to boost growth

The OECD states that artificial intelligence (AI) has the potential to revive global economic growth and productivity. Moreover, it expects AI to trigger an acceleration in innovation. In its report, the OECD reveals that the number of firms using AI has surged but most of those companies are large ones.

“The net effect of AI on productivity will depend on many factors, including the extent to which new technologies are widely diffused or concentrated in a few leading firms, and the extent to which AI is labor enhancing as opposed to labor replacing,” the report states.

The report ends with recommendations to policymakers in managing global economic growth. The OECD reveals that monetary policy needs to remain tight, but there will be scope for lowering policy rates. Moreover, fiscal policy needs to address mounting pressures to ensure debt sustainability. Finally, The OECD stated that countries need stronger policies to boost investment,  enhance skills development, and intensify innovation. This will drive technological progress, productivity growth, and boost employment, thus, supporting global economic growth.

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