In its latest global economic outlook report, the OECD predicts that India, China, and Indonesia will lead growth forecasts for 2023 and 2024. The organization forecasts global economic growth of 2.7% this year, the second-lowest rate since the 2008 global financial crisis, excluding 2020, the year of the Covid-19 outbreak.
OECD economist Clare Lombardelli noted that falling energy prices, inflation, supply chain bottlenecks, and the reopening of the Chinese economy, along with a strong job market and relatively stable household finances, are contributing factors to the prospect of economic recovery.
However, economist Lombardelli noted that the pace of recovery will be weaker than before, adding that monetary policymakers will need to navigate a difficult path.
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| The OECD forecasts that India's economy will surpass China's in 2023 and 2024. (Source: Getty) |
Indian star
The OECD expects India's economy to grow by 6% this year, while China and Indonesia's economies are expected to grow by 5.4% and 4.7%, respectively.
According to the OECD, India's 2022 growth momentum will continue this year, thanks to higher-than-expected agricultural output and strong government spending. The OECD added that further monetary easing in the second half of next year will help support household spending. The organization also expects the Reserve Bank of India to move toward a slight interest rate cut starting in mid-2024.
In addition, the OECD report projects that inflation rates in member countries will fall to 6.6% this year, after peaking at 9.4% in 2022. The report also predicts that the UK will experience the highest inflation rate among developed economies this year.
Among the countries featured in the OECD's inflation analysis, only Argentina and Türkiye were found to have higher inflation rates.
To combat inflation and address immediate concerns for the global economy, the OECD recommends that governments implement the following three measures: maintaining a tight monetary policy; phasing out and providing targeted fiscal support; and prioritizing growth-supporting spending and supply-side structural reforms.
The organization noted that virtually all countries have budget deficits and higher levels of debt than before the pandemic. Therefore, careful choices are needed to maintain scarce budget resources for future policy priorities and to ensure debt sustainability.
The recovery is fragile.
The OECD warns that the global economic recovery remains fragile as central banks continue to tighten monetary policy. This could lead to tensions in financial markets.
The OECD report highlights the main concern as new weak links potentially emerging in the banking sector, leading to broader loss of confidence and a sharp contraction in credit, while increasing the risks from liquidity and leverage imbalances in non-bank financial institutions.
Although banks in general may have been able to respond more flexibly than during the recent global financial crisis, the OECD believes that market confidence remains fragile following the recent collapse of banks in the US.
In addition, the high levels of debt in advanced economies following the Covid-19 pandemic and the conflict in Ukraine are also issues to consider.
According to economist Lombardelli, most countries are struggling with budget deficits and rising public debt. The burden of debt repayment is increasing, and spending pressures related to an aging population and climate change are also growing.
Last month, World Bank President David Malpass expressed similar concerns, further asserting that the debt-to-GDP ratio of advanced economies is higher than ever before.
The outlook for Asia remains bright.
The OECD stated that while the global economy may slow down further, Asia is expected to remain a bright spot thanks to inflation in the region being projected to remain relatively mild. In addition, China's reopening is expected to boost demand in the region.
The OECD forecasts Japan's GDP growth at 1.3%, thanks to fiscal policy and core inflation continuing to rise to 2%. Nomura economists recently stated that global financial conditions suggest this is "a time for Asia to shine."
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