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The global economy, which surprisingly proved resilient this year, is expected to falter next year under the pressure of wars, still-high inflation and persistently high interest rates, the Organization for Economic Co-operation and Development (OECD) announced.
The Paris-based OECD estimated on Wednesday that international growth will slow to 2.7% in 2024 from the 2.9% expected this year. This represents the slowest growth in a calendar year since pandemic year 2020.
Despite the bleak outlook, the organization "projects that recessions will be avoided almost everywhere," said OECD Secretary-General Mathias Cormann. However, according to him, there is a risk that inflation will remain persistently high and that the conflict between Israel and Hamas and Russia's war in Ukraine could affect commodity prices, such as oil or grains.
A key factor in the slowdown is that the OECD expects the world's two largest economies, the US and China, to slow next year. The US economy is forecast to grow by just 1.5% in 2024, down from 2.4% in 2023, as 11 rate hikes by the Federal Reserve since March 2022 continue to be a drag on growth.
China's economy, weighed down by a destructive real estate crisis, rising unemployment and slowing exports, is expected to grow 4.7% in 2024, up from 5.2% this year. "China's consumption growth is likely to remain subdued due to increased advance savings, a more gloomy outlook for job creation and increased uncertainty," according to the OECD.
The countries of the European Union (EU), which share the euro currency, are expected to contribute to the global slowdown, which are also under pressure from rising interest rates and rising energy prices that followed Russia's invasion of Ukraine.
The OECD expects collective eurozone growth next year to be 0.9%, but an improvement on growth of 0.6% forecast in 2023. "The key issue today is the stronger outlook for the US, which we have revised down to 2024, but the weaker outlook for Europe, which we have revised down," OECD chief economist Clare Lombardelli told reporters.
She highlighted the impact on Europe of rising energy prices last year after Russia cut off most of its natural gas to the continent.
The world economy has suffered shock after shock since the start of 2020, the COVID-19 pandemic, a resurgence of inflation as the pandemic recovery showed unexpected strength, the war in Ukraine and high borrowing rates while central banks acted aggressively in the fight against consumer price acceleration.
Despite all this, however, the economic expansion unexpectedly proved strong. A year ago, the OECD predicted global growth of 2.2% for 2023. This forecast turned out to be too pessimistic. Now, the organization warns, the deadline may have expired.
"Growth has been stronger than expected so far in 2023," the OECD said in its 221-page report, "but is now beginning to fade as the impact of stronger conditions is increasingly felt financial austerity, weak trade growth and lower business and consumer confidence".
The OECD warns that the world economy faces new risks from heightened geopolitical tensions amid the war between Israel and Hamas, "especially if the conflict widens".
"This could result in significant volatility in energy markets and major trade routes," it said, among other things. /AA
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