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The OECD raised its global economic growth forecast for this year to three percent



Interest rate hikes are painful for the economy, but necessary in the fight against high inflation

The OECD has improved its economic growth forecast for this year. The world economy is expected to strengthen by three percent, which is 0.3 percentage points more than the June forecast. The OECD lowered its economic growth forecast for next year from 2.9 to 2.7 percent.

“After a better-than-expected start to 2023, helped by lower energy prices and the reopening of China, global economic growth is expected to moderate throughout the year,” notes the Organization for Economic Co-operation and Development (OECD).

Since the prospects for further growth are weak, the growth of the world economy next year is expected to be lower than this year. Inflation is falling, but core inflation remains stubborn, driven by the service sector and relatively tight labor market conditions.

Risks to growth thus come from persistent inflation, possible further disruptions in the energy and food markets, and a sharper slowdown in growth in China. Meanwhile, public debt remains high in many countries, the OECD notes in its latest report.

Central banks have raised interest rates sharply in response to high consumer prices. Even if there are no more hikes, the consequences of the hikes will affect the economic picture. Borrowing costs for businesses and households have risen and credit conditions have tightened, according to the OECD.

“According to the forecasts, inflation will gradually moderate until the end of this year and next year, but in most economies it will remain above the target of the central banks,” stated in the OECD, but added that interest rate hikes, although painful for the economy, are necessary in the fight against high inflation.

Eurozone with lower growth

The organization lowered its growth forecast for the euro zone. This year’s growth will be 0.6 absent and 0.3 percentage points lower than the June forecast. Next year, growth is expected to be lower by 0.4 percentage points and is expected to be 1.1%.

This is influenced by the problems of the German economy. While the OECD predicted zero growth for Germany in June this year, it is now predicting a decrease in gross domestic product by 0.2 percent. Next year, growth in this country will be lower by 0.4 percentage points and, according to forecasts, will reach 0.9 percent.

Economic growth in China is expected to be 5.1 percent this year, which is 0.3 percentage points less than the OECD forecast in June. Growth next year is also expected to be lower than the June forecasts, the OECD lowered it by 0.5 percentage points to 4.6 percent.

Meanwhile, the US economy is expected to record higher economic growth. This should reach 2.2 percent this year. The OECD has also improved its forecast for next year, namely that the USA predicts 1.3% growth for next year, which is 0.3 percentage points more than in June. Although the American economy has so far proven to be very resilient, the OECD expects the consequences of the tightened economic policy to be seen.

The OECD also improved its forecast for Japan this year, by 0.5 percentage points to 1.8 percent. For next year, meanwhile, he worsened it by 0.1 percentage points to one percent.

Source: Rtvslo

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