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Global Economy Faces a Fragile Recovery, OECD Says

Global Economy Faces a Fragile Recovery, OECD Says

The Organisation for Economic Co-operation and Development (OECD) has released its latest Economic Outlook, which projects a moderate global growth rate of 2.7% in 2023, followed by a slight improvement of 2.9% in 2024. However, the recovery remains fragile and faces several downside risks, such as high inflation, geopolitical tensions, and uncertainty about the impact of monetary policy tightening.

Inflation is Expected to Ease Gradually

One of the main challenges for the global economy is the persistent inflationary pressure, which has been driven by supply shocks, rising energy and food prices, and strong demand. The OECD expects headline inflation to peak at 7% in 2023 for the OECD area, before declining to 5.2% in 2024 and 3.8% in 2025. The report says that monetary policy should remain restrictive until there are clear signs that inflation is durably abating, but also cautions that policy interest rates can be lowered as inflation declines.

Global Economy Faces a Fragile Recovery, OECD Says

Geopolitical Tensions Pose a Major Risk

Another source of uncertainty for the global outlook is the heightened geopolitical tensions, especially in the Middle East, where the conflict between Israel and Hamas has escalated. The report warns that a disruption of energy markets could have severe consequences for the global economy, as well as for the climate change agenda. The OECD urges the international community to work together to resolve the crisis and to support the humanitarian needs of the affected populations.

Trade Growth Remains Weak

The global trade growth has been surprisingly weak over the past year, despite the recovery from the pandemic. The report attributes this to several factors, such as supply chain disruptions, protectionist measures, and weak business confidence. The OECD projects that global trade volumes will grow by 3.4% in 2023, 4.1% in 2024, and 4.5% in 2025, well below the pre-pandemic trend. The report calls for a revival of global trade, which is essential for productivity and development, and urges countries to refrain from imposing new trade barriers and to cooperate on trade-related issues, such as digital taxation and e-commerce.

Structural Reforms are Needed to Strengthen the Foundations for Growth

The report also emphasizes the need for structural policy reforms to enhance the long-term growth potential of the global economy, as well as to address the social and environmental challenges. The report identifies three key priorities for structural reforms: accelerating decarbonisation, improving educational outcomes, and ensuring fiscal sustainability. The report says that governments should invest in green infrastructure, innovation, and skills, while also implementing measures to reduce future spending pressures, such as pension and health care reforms. The report also stresses the importance of international coordination and cooperation on these issues, as well as on the global tax system and the multilateral development finance.

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