The OECD increased its global economic growth forecast for 2023

Containers in the Port of Los Angeles (Reuters) (MIKE BLAKE/)

The OECD This Tuesday he raised his global economic outlook for 2023but cut the growth forecast for next year, due to the “painful” increases in interest rates aimed at curbing inflation.

Now The global economy is expected to grow 3.0% this year, compared to the 2.7% expected in the June outlook of the Organization for Economic Cooperation and Development.

However, Global growth is expected to remain “insufficient” and slow to 2.7% next yeartwo tenths less than the 2.9% of the previous forecast.

“After a stronger-than-expected start to 2023, helped by lower energy prices and the reopening of China, global growth is expected to moderate,” the OECD noted in its report.

The impact of a more restrictive monetary policy is increasingly visiblebusiness and consumer confidence has dropped and China’s rally has faded”he added.

Consumers in a Toronto shopping center (Reuters)
Consumers in a Toronto shopping center (Reuters) (CARLOS OSORIO/)

Central banks around the world have sharply raised borrowing costs in an effort to rein in consumer prices, which soared following Russia’s invasion of Ukraine last year.

“We are all watching monetary policy tightening work its way into our economies. It is necessary to reduce inflation, but it is painful”, declared Clare Lombardelli, chief economist of the OECD, at a press conference.

The European Central Bank last week raised the official interest rate to a record high, but hinted that it could be its last hike, while the US Federal Reserve is expected to pause its own campaign on Wednesday.

According to forecasts, Inflation will gradually moderate in 2023 and 2024, but will remain above central banks’ targets in most economies.

According to the report, Brazil will grow 3.2% of GDP this year (+1.5 points); India, 6.3% (+0.3 points); Russia, 0.8% (+2.3 points); and South Africa, 0.6% (+0.3 points). Among the BRICS countries, only China sees its expansion revised downwards, to 5.1% of GDP (-0.3 points).

Of the rest of the Latin American countries analyzed, Mexico would grow 3.3% in 2023 (+0.7), while the Argentine economy would contract by 2% (-0.4, the largest drop among G20 members in this update). Furthermore, Argentina will be the only one in that bloc that will continue to decline in 2024, -1.2%. Also, the OECD predicts that the phenomenon of hyperinflation will worsen much more than anticipated.

The China risk

The OECD also warned that “a sharper-than-expected slowdown in China is an additional key risk that would affect production growth around the world.”

The world’s second-largest economy has struggled this year after three years of Covid restrictions and massive debt in the property sector.

Central Business District in Beijing (Reuters)
Central Business District in Beijing (Reuters) (THOMAS PETER/)

The OECD cut its outlook for China, with growth of 5.1% this year. It will slow to 4.6% in 2024, 0.5 percentage points less than previously forecast.

Although it raised its forecast for the world’s largest economy, USA, the OECD noted that US growth will slow from 2.2% in 2023 to 1.3% next year. Although the US economy “has so far demonstrated unexpected resilience to the sharp rise in official interest rates”, the effects of tightening financial conditions “are expected to become increasingly visible”, the OECD said.

The organization lowered its forecasts for the eurozonewith growth of 0.6% this year and 1.1% in 2024, given the difficulties of the German economy.

The growth prospects of Japan they increased 0.5 percentage points, to 1.8% in 2023, but decreased 0.1 points, to 1.0% in 2024.

Increase in credit card delinquencies

Inflation remains well above the Fed and ECB’s 2% targets, and oil prices have rebounded in recent weeks. EU data on Tuesday showed eurozone inflation slowed slightly to 5.2% in August, from 5.3% the previous month.

The Bank of England and its counterparts in Norway, Sweden and Switzerland will also make interest rate decisions on Thursday.

“Even if interest rates are not raised further, the effects of previous increases will continue to weigh on economies for some time,” the OECD stated.

Borrowing costs for businesses and households have risen, while credit conditions have tightened.

“Some countries are already seeing rising rates of loan and credit card defaults, as well as business insolvencies,” the OECD noted.

The crisis in US regional banks in March and the forced sale of European banking giant Credit Suisse show that “risks remain” that higher rates could “produce tensions in the financial system,” the report warns.

(With information from AFP)