Global economy moves beyond inflation crisis to stable growth

‘The projected outlook is comparatively benign, with steady or improving growth and moderating inflation,’ the OECD said.

The global economy is settling into a newfound stability as the stress of strong inflation eases, allowing central banks to keep cautiously loosening policy, according to the OECD.

Economic growth has remained resilient in recent months, inflation has continued to moderate and indicators suggest ongoing momentum in services, the Paris-based organisation said on Wednesday.

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It made only small changes to its outlook compared with May for most countries, and slightly raised its 2024 global output forecast by 0.1 percentage points to 3.2% — the same pace it expects next year. According to the OECD, price increases will be at target in most Group of 20 nations by the end of 2025.

“The projected outlook is comparatively benign, with steady or improving growth and moderating inflation,” the OECD said.

The update sends a reassuring message that monetary officials have avoided the pitfalls of recession or ever-spiraling prices. But the organization cautioned that major central banks should depend on data and take a “prudent” approach, cutting interest rates at a slower pace than they adopted when raising them in 2022 and 2023.

Policymakers have so far taken a similar stance, with the c the only Group of Seven institution to have gone for a half-point reduction, while the European Central Bank, Bank of England and Bank of Canada have all stuck with more traditional 25 basis-point moves. The Bank of Japan, meanwhile, is on a tightening path.

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The OECD cautioned that significant risks remain for the global economy. They include geopolitical and trade tensions, soft labor markets undermining economic growth, and bumps in the disinflation process sparking upheaval on financial markets.

For the US, the growth forecast for 2024 stayed at 2.6%, while it fell for 2025 to 1.6% from 1.8%. For the euro area, the OECD made the same adjustment, bringing its predictions to 0.7% and 1.3% for each year respectively.

© 2024 Bloomberg

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