That was the takeaway Wednesday, June 7, 2023, from the latest economic outlook by the Paris-based Organization for Economic Cooperation and Development. The group, made up of 38 member countries, raised its growth forecast this year to 2.7 percent from an estimated 2.2 percent in November and foresaw only a tiny acceleration to 2.9 percent next year.
The rebound from the Covid-19 pandemic and energy price spike tied to Russia’s invasion of Ukraine is likely to be weak by past standards, with average growth of 3.4 percent recorded in the pre-pandemic years 2013-2019.
The path ahead is fraught with risks, from escalation of Russia’s war in Ukraine — with a dam collapse Tuesday, June 6, that the sides blamed on each other — to debt troubles in developing countries and rapid interest rate hikes having unforeseen effects on banks and investors.
“The global economy has begun to improve,” OECD Secretary-General Mathias Cormann said at a news conference. “We are projecting a recovery over 2023 and 2024. However, at this point, it is a recovery to low global growth.”
“Economic indicators are showing some improvement,” he said. “But the upturn remains fragile.”
It was a more optimistic outlook than the World Bank gave Tuesday, citing similar risks in its expectation for 2.1 percent global growth this year. That was still an upgrade from its January forecast of 1.7 percent.
Energy prices have fallen to pre-invasion levels, helping ease the worst of the recent outbreak of inflation. But those costs are still higher than they were before Russia began massing troops on Ukraine’s border in early 2021.
Meanwhile, China’s reopening after drastic pandemic measures has provided a boost to global activity.
But core inflation, which excludes volatile energy and food prices, is proving persistent as some companies raise prices to increase profits and workers push for higher wages amid relatively low unemployment.
The OECD sees inflation declining to 5.2 percent by year end from 7.8 percent at the end of last year in the Group of 20 countries that make up more than 80 percent of the global economy. The US should see annual inflation of 3.2 percent by the last quarter of this year, and Europe’s rate should fall to 3.5 percent.
Those levels would provide some relief but are still above the two percent inflation targets for the European Central Bank and US Federal Reserve, which have been rapidly raising interest rates to fight inflation. That increases the cost of borrowing to buy houses and invest in business expansion.
The OECD cautioned that while central banks need to maintain policies that restrict credit, they “must keep a watchful eye, given the uncertainties around the exact impact” of the rapid hikes. (AP)