OECD sees limited growth pick-up as rate hikes weigh
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[June 07, 2023] By
Leigh Thomas
PARIS (Reuters) -Global economic growth will pick up only moderately
over the next year as the full effects of central bank rate hikes are
felt, the OECD said on Wednesday, the latest to flag the impact of
monetary tightening.
The world economy is set to grow 2.7% this year, the Organisation for
Economic Cooperation and Development (OECD) said, up from its previous
forecast of 2.6% in March.
Though boosted by the lifting of China's zero-COVID policy, that would
be the lowest annual rate since the 2008-2009 global financial crisis
with the exception of the pandemic-hit year of 2020, the Paris-based
organisation said.
Growth would then accelerate only slightly next year to 2.9% - unchanged
from March's forecast - as rate hikes by major central banks over the
last year increasingly drag on private investment, starting with housing
markets.
On Tuesday, the World Bank also cited the growing impact of rate hikes
as it raised its forecast for world growth this year to 2.1% but for
2024 cut it back to 2.4% from a previous 2.7% forecast. A sharp fall in
May for Chinese exports released on Wednesday also pointed to weakening
global demand.
The OECD forecast that inflation in the Group of 20 major economies
would fall from 7.8% last year to 6.1% this year and 4.7% in 2024 -
still well above many central banks' targets despite the interest rate
hikes.
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"A substantial risk is that inflation proves to be more persistent and
in response interest rates need to be higher for longer," OECD chief
economist Clare Lombardelli told a news conference.
OECD head Mathias Cormann chimed in saying that the risk of major
central banks doing too little or too much was currently "evenly
balanced".
U.S. Federal Reserve officials have flagged a possible pause in interest
rate hikes while the European Central Bank has indicated that further
increases are likely in the coming months.
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![](../images/060723PIX/busine3.jpg)
Outside view of the Organization for
Economic Co-operation and Development, (OECD) headquarters in Paris
September 3, 2009. REUTERS/Charles Platiau/File Photo
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In the OECD's outlook, the U.S. Federal Reserve's main interest rate
was seen peaking soon at 5.25-5.5%, with "modest" rate cuts in the
second half of 2024.
In the euro area, the OECD expects the ECB to keep raising rates in
the face of still high core inflation, with a peak seen in the third
quarter. It forecast the ECB would then leave its main rate at 4.25%
until the end of 2024.
The Bank of Japan was expected to keep monetary policy
accommodative, with no increase until the end of 2024, while UK
rates were seen peaking some time from the second quarter of 2023.
The OECD forecast the U.S. economy would grow 1.6% this year before
slowing to 1% in 2024, with the lagged effect of rate hikes hitting
the world's biggest economy particularly hard. It had previously
foreseen U.S. growth of 1.5% this year and 0.9% in 2024.
Boosted by the end of COVID restrictions, the Chinese economy was
expected to grow 5.4% in 2023 before moderating to 5.1% in 2024.
China's growth was previously forecast at 5.3% and 4.9%
respectively.
As Europe's winter energy price shock fades, euro area growth was
seen accelerating from 0.9% this year to 1.5% in 2024 as lower
inflation weighed less on incomes. In March, the OECD saw growth of
0.8% in 2023 and 1.4% in 2024.
Similarly, UK growth was seen rising from 0.3% in 2023 to 1% in 2024
as real income growth starts to improve. The UK's outlook was raised
from March forecasts for -0.2% in 2023 and 0.9% in 2024.
(Reporting by Leigh ThomasEditing by Mark Potter, Bernadette Baum
and Christina Fincher)
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