The Organization for Economic Cooperation and Development (OECD), comprised of 38 member countries, has presented its latest economic outlook, highlighting the precarious path the global economy must navigate in the coming years. Inflationary pressures continue to weigh on household spending, while the impact of rising interest rates is dampening overall growth for banks and markets.
Although the OECD raised its growth forecast for this year to 2.7% from an earlier estimate of 2.2% in November, it foresees only a slight acceleration to 2.9% in the following year. This projected rebound from the COVID-19 pandemic and energy price surge resulting from Russia’s invasion of Ukraine falls short of pre-pandemic growth levels, where average growth rates of 3.4% were recorded between 2013 and 2019.
However, the road to recovery is fraught with risks. The ongoing escalation of Russia’s war in Ukraine, characterized by a recent dam collapse with both sides blaming each other, poses a significant threat. Additionally, debt troubles in developing nations and the potential for the rapid rising of interest rates could have unforeseen consequences for banks and investors.
The economy shows signs of improvement
While the global economy is showing signs of improvement, the OECD emphasizes that the upturn remains fragile, and achieving strong and sustainable growth will require a long-term effort.
The World Bank’s outlook, presented on Tuesday, echoed similar risks and expectations of 2.1% global growth for this year. This forecast represents an upgrade from the January projection of 1.7%.
Energy prices have receded from their peak during the invasion but remain higher than pre-crisis levels. China’s reopening after implementing strict pandemic measures has provided a boost to global economic activity.
However, persistent core inflation, excluding volatile energy and food prices, presents a challenge. Some companies are raising prices to enhance profits, and workers are advocating for higher wages despite relatively low unemployment levels.