(Paris) High inflation and central bank interest rate hikes will continue to weigh on the global economy, warns the OECD in its latest forecasts published Tuesday which raise the outlook for global growth this year, but lower that for 2024.
“A key factor shaping global growth is the rise in interest rates in most major countries since the start of 2022,” writes the Organization for Economic Co-operation and Development (OECD) in its report titled “Coping with inflation and low growth”.
Central banks across the planet have been engaged for more than eighteen months in sharp increases in interest rates in order to curb inflation reignited by the pandemic and the war in Ukraine.
The reference interest rate of the European Central Bank (ECB), for example, is today at its highest since 1999 after a further increase last week.
“We are all seeing that rising rates are making their way through our economies. It is necessary to reduce inflation, but painful,” conceded OECD chief economist Clare Lombardelli during a press conference Tuesday in Paris.
These rate increases weigh on economic activity by restricting credit, the cost of which is higher, granted to households and businesses.
“The effect of restrictive monetary policy is becoming more and more visible,” notes the OECD, which has revised its global growth forecast for 2024 downward to 2.7% (-0.2 points).
“Business and consumer confidence is trending downward,” adds the international institution based in Paris.
However, a slight improvement is expected this year on an international scale since growth is expected to be 3%, an increase of 0.3 points compared to the institution’s previous June forecasts, but still below 3. 3% recorded in 2022.
Several countries came to boost this figure, including the United States, which could end the year with growth of 2.2%, up 0.6 points compared to the OECD’s June forecasts, in favor of a good second trimester.
The spring was also beneficial for the main emerging countries: Brazilian growth is expected at 3.2% (1.5 points) this year, India at 6.3% (0.3 points), Russia at 0 .8% (2.3 points), and South Africa at 0.6% (0.3 points).
Among the “Brics” countries, a bloc of emerging countries, only China saw its outlook revised downward, to 5.1%, a decline of 0.3 points.
In the euro zone, “where demand is already moderate” says the OECD, growth is expected at 0.6% this year, a decline of 0.3 points compared to the June figure, weighed down by Germany which could fall into recession, and Italy whose forecast is cut by 0.4 points, to 0.8%.
France for its part would show 1% growth this year (0.2 point) and 1.2% next year (-0.1 point), and Spain 2.3% (0.2 point) and 1.9% in 2024, a stable figure.
As a whole, the euro zone should turn around in 2024 with 1.1% GDP growth, “as the negative impact of high inflation on income fades,” the OECD predicts.
Far from calling for a lull on the interest rate front, the international organization writes in its quarterly report that “monetary policy must remain restrictive until there are clear signals” of a reduction inflationary pressures.
A lull could be on the horizon next year: the OECD anticipates 4.8% inflation in the G20 countries next year, 3% in the euro zone, and 2.6% in the United States. United, after respectively 6%, 5.5% and 3.8% expected this year.