MNI: OECD Sees Weakest Growth Outside of Pandemic Since 2008

The OECD says global economic growth in 2024 will be the weakest since the 2008 financial crisis, except for the start of the pandemic, while stubborn core inflation means central banks will hold interest rates until the second half of next year.

"We are projecting a soft landing for advanced economies, but this is far from guaranteed" the Paris-based group's chief economist Clare Lombardelli wrote to introduce the report. "Risks to the near-term global outlook remain tilted to the downside."

Those dangers include geopolitical tensions, a spike in oil prices, market disruptions from tight financial conditions and a slowdown in China, the OECD said. Growth is also expected to be weighed down by weaker global trade ties and a potential hit from lagged monetary policy tightening, according to the projection for 2.9% growth this year, 2.7% in 2024 and 3% in 2025.

Inflation will not return to target across most major economies until 2025, though Japan will be able to raise interest rates as inflation settles at 2%, the OECD said. While the Fed and BOC will start cutting interest rates in the second half of next year, global borrowing costs might not return to lows seen before the pandemic, according to the report.

Highlights:

• In the US, reductions in the federal funds rate are projected to begin in the second half of 2024, as core inflation declines prove sustained, and proceed in 2025, with policy interest rates being lowered to 4-4.25% by the end of 2025.
• GDP growth in China is projected to have rebounded to 5.2% in 2023, but is expected to slow to 4.7% in 2024 and 4.2% in 2025. Consumption growth remains subdued and activity in the real estate sector continues to weaken, but monetary policy easing and additional infrastructure investment will help underpin domestic demand.
• In the euro area, where core inflation pressures are still relatively-elevated, the main refinancing rate and the deposit rate are projected to remain unchanged until the spring of 2025, with subsequent modest rate reductions through the year. Bond holdings are expected to continue to decline with no reinvestment of Asset Purchase Programme redemptions but full reinvestment, at least until end-2024, of maturing Pandemic Emergency Purchase Programme securities.
• In Japan, an exit from the negative short-term policy rate is warranted next year, with the policy rate increasing gradually to 0.7% by the end of 2025, when inflation is projected to have durably settled at 2%.
• No further policy rate increases are projected in Australia, Canada, Korea and the United Kingdom. Reductions in policy rates are projected to start in the second half of 2024 in Australia, Canada and Korea and in early 2025 in the United Kingdom.