The Organization for Economic Co-operation and Development (OECD) on Thursday upgraded its forecast for global growth in 2024, boosted by a recovery in the United States as the eurozone lags but cited that growth remains modest although there are signs that the global outlook has started to brighten.
The Paris-based organization said it now sees this year's global growth at 3.1%, up from its previous projection of 2.9% in February. The organization sees global growth picking up marginally to 3.2% in 2025 versus its earlier projection of 3.0%.
"Cautious optimism has begun to take hold in the global economy, despite modest growth and the persistent shadow of geopolitical risks," the OECD said in its latest quarterly report.
However, the report noted that "this recovery is unfolding differently across regions" and that "the mixed macroeconomic landscape is expected to persist, with inflation and interest rates declining at differing paces, and differing needs for fiscal consolidation."
The U.S. economy is now expected to expand 2.6% in 2024, up from the 2.1% previously expected, and faster than last year's 2.5%.
Chinese growth remains even stronger, with the OECD raising its projection to 4.9% in 2024 compared to the 4.7% previously expected, thanks notably to an expansionary budgetary policy.
However, the OECD sees timid growth of just 0.7% in the eurozone, though that is up from the 0.6%previously expected. It anticipates a slight recovery to 1.5% in 2025, compared to the 1.3% expected in February, thanks to a recovery in domestic demand.
"A recovery in real household incomes, tight labor markets and reductions in policy interest rates are projected to help generate a gradual rebound," it said.
The gross domestic product (GDP) remained flat in the last quarter of 2023, mainly reflecting subdued household consumption and weak export growth. Elevated geopolitical tensions continue to contribute to uncertainty, the organization said.
"Forward-looking indicators of sentiment and confidence remain at levels consistent with mild output declines, despite improvements in the composite PMI in March and April, primarily in services."
Country-wise looking, the OECD cut its 2024 growth forecast for Germany, Europe's largest economy, to 0.2% from 0.3% previously.
Conversely, the OECD raised its growth forecast for 2024 for France, increasing it slightly to 0.7% from 0.6%, lifted by private consumption.
In Britain, the economy is seen growing 0.4% in 2024 and 1.0% in 2025, slower than what was expected in February, which the OECD blamed on persistent inflation, making it the weakest growing economy among G-7 nations for the next year, respectively.
The OECD also forecasts a very deep recession in Argentina, followed by a recovery in 2025, as the country's new president Javier Milei drives through his free-market reform package.
Argentina's GDP is expected to contract by 3.3% in 2024, before growing by 2.7% in 2025. "High inflation, a sizeable but necessary fiscal adjustment, and policy uncertainty will weigh on private consumption and investment for most of 2024," OECD said.
For Japan, the real GDP growth is projected to moderate to 0.5% in 2024 before strengthening to 1.1% in 2025, as domestic demand rebounds.
Private consumption will be supported by wage growth and fiscal measures, according to OECD while government subsidies for green and digital investment and high corporate profits will boost business investment, despite potential supply constraints.
For Türkiye, the organization forecasts the real GDP growth to slow from 4.5% in 2023 to 3.4% in 2024 and 3.2% in 2025.
The OECD sees the impact of tighter financial conditions and the impact of inflation to subdue household consumption.
Investment activity, however, is expected to remain strong partly due to the ongoing reconstruction following the 2023 earthquake while exports will gradually strengthen reflecting an improved external environment, it said.
Moreover, the OECD warned that "high geopolitical tensions, particularly in the Middle East, could disrupt energy and financial markets, causing inflation to spike and growth to falter."
Regarding inflation, the OECD said that while the headline inflation fell rapidly in most economies during 2023, and the food price inflation also came down sharply in most countries, the core goods price inflation has generally fallen steadily, but services price inflation has been stickier, remaining well above pre-pandemic averages in most countries.
OECD in its report also said that artificial intelligence (AI) holds the potential for reviving trend productivity growth and triggering an acceleration of innovation, even if estimates of the impact of AI on productivity are subject to considerable uncertainty.
The share of firms making use of AI has risen rapidly, though most of these are large companies. The net effect of AI on aggregate productivity will depend on many factors, including the extent to which new technologies are widely diffused or concentrated in a few leading firms and the extent to which AI is labor-enhancing as opposed to labor-replacing.
Moreover, in its editorial note, the OECD warned that the fiscal position "is worrying," in the medium and longer term.
"Governments must address mounting debt and rising expenditure demands due to aging populations, climate change mitigation, and defense needs. Increasing debt-service costs further worsen fiscal sustainability. There is never an attractive time to do this, but conditions enable this rebuilding to begin now. A robust medium-term approach to containing spending, building revenues and focusing policy efforts on growth-enhancing structural reforms are all needed," OECD Chief Economist Clare Lombardelli said.
"Disappointing growth underscores the case for strengthening global trade and productivity. Trade and industrial policies should aim for resilient global value chains through diversification without undermining the benefits of open trade."
