RIYADH: Persistent inflation and a slowdown are set to push global gross domestic product growth down 0.2 percentage points to 2.7 percent in 2024, with an anticipated increase to 3 percent in 2025, a new report showed.
According to the Organization for Economic Co-operation and Development, the global economy is facing tighter financial conditions, weak international trade, and lower confidence among businesses and consumers, despite stronger-than-expected growth in 2023.
The report noted that housing markets and economies relying on bank-based finance, especially in Europe, are experiencing a slowdown, while geopolitical tensions are contributing to uncertainty in the short-term outlook.
It emphasized that while headline inflation has decreased in most economies, core inflation remains relatively high.
Emerging-market economies are expected to maintain better growth than advanced economies, with Europe experiencing relatively subdued growth compared to North America and major Asian economies.
Risks to the global outlook include heightened geopolitical tensions, rising trade restrictions, and potential disruptions to energy markets and trade routes.
The OECD warned that continuation of cost pressures, increases in energy and food prices, or a drift in inflation expectations could lead to central banks maintaining higher policy rates, impacting financial markets.
The report stated that key recommended policy priorities include ensuring a durable reduction of inflation, addressing fiscal pressures, and enhancing prospects for sustainable and inclusive growth.
“Monetary policy needs to remain restrictive in most advanced economies until inflation declines durably,” it added.
Governments need to manage rising fiscal pressures by withdrawing or better targeting fiscal support measures and implementing credible medium-term fiscal frameworks.
The OECD stressed that enhanced multilateral cooperation is essential for reviving global trade, and structural reforms are needed to reinvigorate growth, particularly in the face of challenges from aging populations, climate transition, and digitalization.
In summary, the global economy is projected to experience a mild slowdown with a gradual return to near-trend growth rates, and inflation converging back to central bank targets by 2025.
The outlook depends on various factors, including geopolitical developments, trade dynamics, and the effectiveness of policy responses.
