The OECD believes that high inflation is rightly being combated with global interest rate increases. But this has an impact on the economic outlook. The experts see problems particularly in China and Germany.
According to the OECD, the global economy will develop even weaker next year and inflation will remain high. In its current economic forecast, the industrialized nations organization expects growth of 3.0 percent this year. In 2024, global economic output will only increase by 2.7 percent. In 2022 it was still 3.3 percent. The forecast for 2023 was increased by 0.3 percentage points and that for 2024 was reduced by 0.2 points.
A key reason for the cautious outlook is the interest rate increases by central banks in order to get inflation under control. The higher interest rate level is slowing down economic activity, as can currently be observed in the German construction industry.
German economy is likely to shrink
Along with debt-plagued Argentina, Germany is the only large industrial country that OECD experts see as being in recession this year. They expect German economic output to decline by 0.2 percent. In June they still thought stagnation was possible.
In 2024 there should be enough growth of 0.9 percent, less than previously expected. For a long time, Germany was particularly dependent on cheap energy supplies from Russia, which have largely disappeared since the invasion of Ukraine.
The Institute for Macroeconomics and Economic Research (IMK) also sees Germany in recession. The probability of this increased to 74 percent between September and November, according to the economic researchers. The corresponding indicator from the union-affiliated institute was still at 71.5 percent at the beginning of August. “The German economy continues to lack growth impulses,” said IMK expert Peter Hohlfeld. “There are still headwinds coming from almost all directions.”
China “major risk to global economy”
With expected rates of 5.1 percent in 2023 and 4.6 percent in 2024, China is still growing above average. However, the economists significantly lowered their forecasts for the world’s second largest economy. A possibly even greater slowdown in China is a main risk for the global economy, emphasized the OECD. “High debt and the weak real estate sector are significant challenges.” In addition, consumption there is only gradually recovering despite the reopening of the economy following the strict Corona policy.
The United States, on the other hand, is an important pillar of the global economy. Here the experts significantly increased their forecasts. The world’s largest economy is expected to grow by 2.2 percent in 2023 and by 1.3 percent in 2024. There have been surprisingly good developments recently in Brazil, India and South Africa. According to the OECD, the euro area will grow by 0.6 percent this year, driven by Spain and France. In 2024 there should be an increase of 1.1 percent in the euro zone. For Russia, the experts are forecasting growth rates of 0.8 and 0.9 percent – instead of the current shrinking economy.
Further tight monetary policy required
The organization, which is supported by the leading industrial nations, spoke out in favor of a further restrictive monetary policy. The central banks should stay the course until there are clear signs that price pressure has been permanently eased. But there can be no talk of that yet. Experts are expecting inflation of 5.5 percent in the Eurozone and 6.1 percent in Germany this year. In 2024 it will probably be 3.0 percent. For the USA, which started raising interest rates earlier, values of 3.8 and 2.6 percent are expected.