(Reuters) – Falling inflation and strong labor markets point to an improvement in the global outlook in 2024 and 2025, but risks remain, the OECD said on Thursday in an update of its economic projections.
The Organization for Economic Cooperation and Development is targeting global gross domestic product (GDP) growth of 3.1% this year, a pace equal to that of 2023, and against a previous forecast of 2.9%. Growth is expected to rebound in 2025 to 3.2%.
Inflation is falling faster than expected, while the resilience of labor markets allows for an increase in real incomes which will support consumption, while private sector confidence is restored, details the OECD which reports a ” cautious optimism.
The OECD therefore forecasts a return of inflation to its target of 2% by 2025 for most major economies. In the United States, the OECD expects a reduction in Federal Reserve (Fed) rates to between 3.5% and 4% by the end of 2025, compared to an easing to 2.5% for the European Central Bank. (BCE) on this same date.
Rates currently reach 5.25%-5.5% for the Fed and 4% for the ECB respectively.
The OECD nevertheless mentions several risks, first and foremost geopolitical tensions, a “persistent shadow” that could disrupt energy markets and lead to a rebound in price dynamics.
Inflation could also prove resilient, supported in particular by services, while high real rates could have greater impacts than expected on debt service and business bankruptcies.
“The main priorities for public action consist of bringing inflation down sustainably, defining a budgetary trajectory that will make it possible to deal with rising tensions, and undertaking reforms to achieve sustainable growth,” therefore recommends the organization.
The OECD has also raised growth forecasts for the euro zone to 0.7% in 2024 (compared to 0.6%), thanks to the rebound in private consumption enabled by the rise in real wages. For 2025, it is targeting an increase of 1.5% (compared to 1.3%).
It also revised downward growth expectations in 2024 for Germany, the bloc’s largest economy, to 0.2% (compared to 0.3%), and brought its growth projection for France in 2024 to 0. 7% (compared to 0.6%).
(Written by Corentin Chappron, edited by Kate Entringer)
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