OECD Forecasts Global Economic Stabilisation As Inflation Eases, Rate Hikes Fade

The global economy is showing signs of stabilisation as the impact of central bank rate hikes begins to wane and lower inflation improves household incomes, according to a report released by the Organisation for Economic Cooperation and Development (OECD) on Wednesday.

The OECD revised its global growth forecast for 2024 slightly upward, projecting the world economy will grow by 3.2 per cent both this year and next.

This is an improvement from the previous forecast of 3.1 per cent for 2024, while the outlook for 2025 remains unchanged at 3.2 per cent.

According to a Reuters report, the OECD’s latest economic outlook highlights the diminishing effects of central bank tightening, which have been aimed at curbing inflation in recent years.

As these measures phase out, the organization expects interest rate cuts to stimulate spending, with consumer demand further bolstered by declining inflation.

The report also pointed out that if the recent drop in oil prices continues, global headline inflation could fall by an additional 0.5 percentage points over the next year, providing further relief to consumers and boosting economic activity.

This update signals optimism for the global economy, with expectations of improved consumer spending and a more favourable inflationary environment in the coming years.

With inflation heading towards central bank targets, the OECD projected that the U.S. Federal Reserve’s main interest rate would ease to 3.5 per cent by the end of 2025 from 4.75 per cent-5 per cent currently and European Central Bank would cut to 2.25 per cent from 3.5 per cent now.

U.S. growth was expected to slow from 2.6% this year to 1.6 per cent in 2025 though interest rate cuts would help cushion the slowdown, the OECD said, trimming its 2025 estimate from a forecast of 1.8 per cent in May.

The Chinese economy, the world’s second-biggest, was seen slowing from 4.9% in 2024 to 4.5 per cent in 2025 as government stimulus spending is offset by flagging consumer demand and a real estate rut.

The euro zone would help make up for slower growth in the two biggest economies next year with the 20-nation bloc’s growth forecast to nearly double from 0.7 per cent growth this year to 1.3 per cent as incomes grow faster than inflation.

The OECD hiked its outlook for the UK economy amid high wage growth, projecting the UK economy expanding by 1.1 per cent in 2024 and 1.2 per cent in 2025, up from May forecasts for 0.4 per cent this year and 1 per cent next year.