The Paris-based Organisation for Economic Co-operation and Development's latest economic outlook sees limited improvement in global prospects but says rate hikes will weigh on growth.
The global economy is set for a precarious recovery this year and next, as it continues to deal with the aftershocks of the Covid-19 pandemic and Russia’s war in Ukraine, the Organisation for Economic Co-operation and Development (OECD) said on Wednesday.
The Paris-based OECD's latest Economic Outlook said the United States, Europe, and China will experience the same relative sluggishness in their recoveries.
“The global economy is turning a corner but faces a long road ahead to attain strong and sustainable growth. Global economic developments have begun to improve, but the upturn remains fragile,” it said.
Dogged by persistent inflation and the restrictive policies of major central banks seeking to contain price pressures, the world economy is set to grow 2.7 per cent this year, slightly up from its March forecast of 2.6 per cent.
In 2024, growth will pick up marginally to 2.9 per cent, which means both years are expected to remain below the 3.4 per cent average seen in the seven years before the pandemic.
The organisation says despite the moderate improvement, higher interest rates will weigh on growth, banks, and markets, while inflation will continue to drag on household spending.
Economists had predicted that the outlook would remain subdued because of inflation, concerns about energy security, and the ongoing war in Ukraine.
The OECD sees inflation declining to 5.2 per cent by year-end from 7.8 per cent at the end of last year in the Group of 20 countries that make up more than 80 per cent of the global economy. Europe's rate should fall to 3.5 per cent.
Those levels would provide some relief but are still above the 2 per cent inflation targets for the European Central Bank which has been rapidly raising interest rates to fight inflation.
It cautioned that while central banks need to maintain policies that restrict credit, they “must keep a watchful eye, given the uncertainties around the exact impact" of the rapid hikes.
The OECD’s outlook was however more optimistic than that of the World Bank.
On Tuesday, citing similar risks, it raised its forecast for world growth this year to 2.1% but cut back expectations for 2024 to 2.4 per cent from a previous 2.7 per cent forecast.