Global Economic Growth Picks Up as Inflation Eases – OECD and The World Economic Forum Stay Positive

The global economy has steadied following years of inflation-driven turbulence and is projected to grow at a 3.2% rate over the next two years, according to a report released by the Organization for Economic Cooperation and Development (OECD) on Wednesday. The report, titled “Turning the Corner,” highlighted a steady decline in inflation across key economies, increasing trade activity, higher real incomes, and a gradual reduction in interest rates by central banks as positive indicators for future economic health.

While the report expressed optimism, it also called on governments to stay alert to potential risks and continue implementing reforms aimed at bolstering growth. OECD chief economist Alvaro Santos Pereira emphasized the need for structural changes, warning that the pace of regulatory reform had slowed in recent years. He noted that reform progress had stagnated in critical areas of the economy and pointed to sluggish productivity growth as a concern. Pereira urged policymakers to prioritize product-market reforms that promote competition to invigorate growth.

Following the COVID-19 pandemic, inflation surged worldwide, with price increases for essential goods and services surpassing 10% annually in some regions. However, the OECD report suggests that the global economy is returning to more stable conditions. By the end of August, inflation in four out of five OECD countries was within one percentage point of central banks’ target rates, with most central banks aiming for controlled, low inflation. In the U.S., the Federal Reserve has set an inflation target of around 2% per year.

Looking ahead, the OECD anticipates headline inflation for G20 nations to reach approximately 3.3% by 2025. Economic growth across G20 countries is expected to be broadly positive in 2024, with the exception of Argentina and Japan. India’s growth rate of 6.7% is projected to lead the pack, followed by Indonesia at 5.1% and China at 4.9%. Despite facing international sanctions due to its conflict with Ukraine, Russia is forecasted to post 3.7% growth. At the lower end, Germany’s growth is expected to hover around 0.1%, with several other major economies, including the United Kingdom, France, Canada, and Australia, showing growth of 1.1% or less.

The OECD predicts significant economic rebounds in 2025, with Argentina expected to bounce back from a projected 4% contraction in 2024 to 3.9% growth. Japan is also forecasted to reverse its decline, moving from a 0.1% drop this year to 1.4% growth in 2025, while Saudi Arabia is expected to accelerate from 1% growth this year to 3.7% in 2025.

Labor shortages, which plagued many developed countries in the aftermath of the pandemic, are also beginning to ease. Rising wages have contributed to inflation, but job vacancies have been decreasing steadily in many G20 nations since peaking in late 2022 and early 2023. The United Kingdom and the United States saw the sharpest declines in unfilled job positions, both dropping by over 30%. While this has led to slightly higher unemployment, it has also helped to ease inflationary pressure.

The OECD report recommends that governments worldwide focus on implementing pro-competition regulatory reforms to strengthen economic growth foundations. Among the suggested measures are a gradual reduction in interest rates, which many central banks had significantly raised to combat inflation, and stronger fiscal discipline to manage growing debt levels.

On the same day, the World Economic Forum released its Chief Economists Outlook, which echoes the OECD’s optimism for the near future but also points to potential challenges. The report highlighted continued inflation easing and the shift toward looser monetary policies as reasons for optimism, but it warned that persistent slow growth and rising political instability could make many countries vulnerable to economic shocks. Additionally, it raised concerns about the sustainability of public debt, noting that current debt levels were undermining governments’ efforts to foster economic growth and leaving them ill-prepared for future downturns.

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