(Paris) The OECD has raised its global growth forecasts for 2023 and 2024 thanks to lower inflation and the reopening of China, but remains fragile, against a backdrop of major difficulties encountered by some banks.
Global gross domestic product (GDP) is expected to increase by 2.6% in 2023, against 2.2% anticipated last November by the Organization for Economic Co-operation and Development (OECD), according to its outlook published on Friday. Last year, global growth was 3.2%.
In 2024, global growth is expected to accelerate to 2.9%, 0.2 percentage point than previously forecast.
Economies will, however, continue to be adversely affected by interest rate hikes decided by central banks to fight inflation.
Tighter monetary policies “could continue to expose financial vulnerabilities related to high leverage and the overvaluation of some assets”, as recently shown by the failure of three US banks, according to the OECD report .
“Signs of the impact of tighter monetary policies have begun to appear in parts of the banking sector, notably in regional banks in the United States,” says the Organization for Economic Co-operation and Development (OECD).
Concretely, “sudden changes in market interest rates and the current market value of bond portfolios could also further highlight the duration risks inherent in the business models of financial institutions, as evidenced by the failure of Silicon Valley Bank in March in the United States”.
Despite these upheavals, the OECD believes that “monetary policies should remain tight until there are clear signs of a sustained reduction in underlying inflationary pressures”.
Also further rate hikes, such as the one decided on Thursday by the European Central Bank (ECB), “still remain necessary in many economies, notably in the United States and in the euro zone”.
The sharp drop this week in the share price of Credit Suisse, a much larger bank whose failure would pose systemic risk to the global economy, was not captured by the report.
Another Achilles heel for many countries is real estate prices, which have started to fall, with possible cascading effects on other sectors.
But despite these risks, a “gradual improvement” in the general economic situation is expected throughout 2023 and 2024, with some easing of inflation.
Global growth is also expected to benefit from “China’s full reopening” post-COVID-19, with the country’s activity expected to rebound in 2023.
In the G20 countries, which represent some 85% of the world’s gross domestic product (GDP), the rise in prices should decrease from 8.1% in 2022 to 4.5% in 2024, anticipates the OECD.
But the improving economic situation “remains fragile” with “uncertainty surrounding the evolution of the war in Ukraine and its broader consequences is a matter of major concern”.
The OECD has raised its outlook for 2023 for most of the world’s major economies, but lowered it for Japan, South Korea, Brazil, Argentina and Turkey.
Germany would now escape a recession for this year with growth of 0.3%, against 0.7% for France (0.1 point compared to November).
US growth is expected to reach 1.5% in 2023, compared to 0.5% previously forecast.
And that of China would grow by 5.3%, against 4.6% expected in November, and India should have the strongest growth of the G20 with 5.9%.
“Demand should be preserved through further easing of savings rates for households that have not yet fully used the additional savings accumulated during the pandemic,” the institution explains.
And in the face of soaring energy and food prices, the organization recommends that states provide aid “more targeted to those who need it most”.
Finally, with regard to energy, aid “should promote energy efficiency” in order to avoid subsidizing activities that are not sustainable in the medium term due to climate change.