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The global economy is turning the corner as growth remained resilient through the first half of 2024, with declining inflation, though significant risks remain, according to the OECD's latest Interim Economic Outlook.
With robust growth in trade, improvements in real incomes and a more accommodative monetary policy in many economies, the Outlook projects global growth persevering at 3.2% in 2024 and 2025, after 3.1% in 2023.
Inflation is projected to be back to central bank targets in most G20 economies by the end of 2025. Headline inflation in the G20 economies is projected to ease to 5.4% in 2024 and 3.3% in 2025, down from 6.1% in 2023, with core inflation in the G20 advanced economies easing to 2.7% in 2024 and 2.1% in 2025.
Note: Revisions relative to the latest estimates from the May 2024 Economic Outlook. India projections are based on fiscal years, starting in April. The European Union is a full member of the G20, but the G20 aggregate only includes countries that are also members in their own right. Spain is a permanent invitee to the G20. World and G20 aggregates use moving nominal GDP weights at purchasing power parities.
Source: OECD Economic Outlook 115 databases; and OECD Interim Economic Outlook 116 database.
GDP growth in the United States is projected to slow from its recent rapid pace, but to be cushioned by monetary policy easing, with growth projected at 2.6% in 2024 and 1.6% in 2025. In the euro area, growth is projected at 0.7% in 2024, before picking up to 1.3% in 2025, with activity supported by the recovery in real incomes and improvements in credit availability. China's growth is expected to ease to 4.9% in 2024 and 4.5% in 2025, with policy stimulus offset by subdued consumer demand and the ongoing deep correction in the real estate sector.
"The global economy is starting to turn the corner, with declining inflation and robust trade growth. At 3.2%, we expect global growth to remain resilient both in 2024 and 2025," OECD Secretary-General Mathias Cormann said. "Declining inflation provides room for an easing of interest rates, though monetary policy should remain prudent until inflation has returned to central bank targets. Decisive policy action is needed to rebuild fiscal space by improving spending efficiency, reallocating spending to areas that better support opportunities and growth, and optimising tax revenues. To raise medium-term growth prospects, we need to reinvigorate the pace of structural reforms, including through pro-competition policies, for example by reducing regulatory barriers in services and network sectors."
The Outlook highlights a range of risks. The impact of tight monetary policy on demand could be larger than expected, and deviations from the expected smooth disinflation path could trigger disruptions in financial markets. Persisting geopolitical and trade tensions, including from Russia's war of aggression against Ukraine and evolving conflicts in the Middle East, risk pushing up inflation again and weighing on global activity. On the upside, real wage growth could provide a stronger boost to consumer confidence and spending, and further weakness in global oil prices would hasten disinflation.
As inflation moderates and labour market pressures ease further, monetary policy rate cuts should continue, even though the timing and the scope of reductions will need to be data-dependent and carefully judged to ensure inflationary pressures are durably contained.
With public debt ratios elevated, rebuilding fiscal space is key to be able to react to future shocks and future spending pressures, including from population ageing and needed investments in the digital transformation and the climate transition. Fiscal policy needs to focus on containing spending growth and optimising revenues, while credible medium-term adjustment paths would help stabilise debt burdens.
"Governments also need to turn the corner on structural reforms," OECD Chief Economist Álvaro Santos Pereira said. "The pace of regulatory reforms in recent years has been stalling, and in important parts of the economy reform progress came to a standstill. Amid sluggish productivity growth and tight fiscal space, product market reforms that promote open markets with healthy competitive dynamics remain a key lever to reinvigorate growth."
