Ali Bekhtaoui and Laurent Thomet
Wed, 7 June 2023
China's sooner-than-expected reopening after Covid is helping the global economic recovery, the OECD says
The OECD slightly raised its growth outlook for the world economy on Wednesday as inflation eases and China has dropped Covid restrictions, but it warned the recovery faces a "long road".
The Paris-based organisation forecast an economic expansion of 2.7 percent, up from 2.6 percent in its previous report in March, with upgrades for the United States, China and the eurozone.
But it is still under the 3.3 percent growth recorded in 2022.
"The global economy is turning a corner but faces a long road ahead to attain strong and sustainable growth," OECD chief economist Clare Lombardelli wrote in the OECD's Economic Outlook.
"The recovery will be weak by past standards," Lombardelli wrote.
The growth forecast for 2024 remains unchanged at 2.9 percent.
- 'Signs of stress' -
A drop in energy prices, the untangling of supply chain bottlenecks and China's sooner-than-expected reopening are contributing to the recovery, the OECD said.
But core inflation, which strips out volatile energy and food prices, is higher than previously expected, according to the Organisation for Economic Co-operation and Development.
The OECD said this may force central banks, which have already raised interest rates in efforts to tame consumer prices, to further hike borrowing costs.
"Central banks need to maintain restrictive monetary policies until there are clear signs that underlying inflationary pressures are abating," Lombardelli said.
At the same time, the organisation warned that higher interest rates around the world are "increasingly being felt", notably in property and financial markets.
"Signs of stress have started to appear in some financial market segments as investors reassess risks, and credit conditions are tightening," the report said.
The banking sector was rocked in March by the collapse of US regional lender SVB, whose demise was partly blamed on high rates bringing down the value of its bond portfolio.
The crisis reverberated across the Atlantic, with the Swiss government forcing Swiss banking giant UBS to take over troubled rival Credit Suisse.
"Should further financial market stress arise, central banks should deploy financial policy instruments to enhance liquidity and minimise contagion risks," Lombardelli wrote.
- Debt danger -
The OECD also warned that almost all countries have budget deficits and higher debt levels than before the pandemic as they propped up their economies to withstand the shocks of Covid restrictions and Russia's war in Ukraine.
"As the recovery takes hold, fiscal support should be scaled back and better targeted," Lombardelli said.
As energy prices, which soared following the Russian invasion of Ukraine, fall further, government should withdraw schemes aimed at supporting consumers, the OECD said.
The OECD raised its 2023 growth forecasts for the United States, the world's biggest economy, to 1.6 percent and China, the second biggest, to 5.4 percent -- both an increase of 0.1 percentage points.
The eurozone also got a slight 0.1-point bump to 0.9 percent.
Britain was upgraded out of recession territory, with growth now forecast at 0.3 percent instead of a contraction.
The OECD, however, sharply lowered the outlook for Germany, with zero growth now expected for Europe's economy while Japan's GDP will grow 1.3 percent, a slight downgrade.
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Global economy in a 'precarious position,' the World Bank finds
June 6 (UPI) -- Global economic growth is on a sharp decline and the severity of the situation could easily trickle down to emerging markets, the World Bank said Tuesday.
The bank on Tuesday said the global economy is on pace to contract by 1% from 2022 to expand by only 2.1% this year. For emerging markets and developing economies, not including China, growth could drop from 4.1% last year to 2.9% this year.
Both of those forecasts represent deep downgrades from previous World Bank estimates.
"The world economy is in a precarious position," said Indermit Gill, the banks chief economist and senior vice president.
Most major economies are facing headwinds from inflationary pressures that have lasted for more than a year. Energy prices last year were buoyed by sanctions targeting Russia's energy sector in response to the war in Ukraine, though prices for food and rents also spiked.
Meanwhile, some support programs designed to help lower-income families during the COVID-19 pandemic have ended. While that's certainly the case for developed economies with the means to fund such programs, developing economies are also seeing a trickle-down impact from global inflation.
"Many developing economies are struggling to cope with weak growth, persistently high inflation, and record debt levels," said Ayhan Kose, a deputy chief economist at the bank. "Yet new hazards - such as the possibility of more widespread spillovers from renewed financial stress in advanced economies - could make matters even worse for them."
For developing economies, the World Bank found the pandemic and the shocks from the war in Ukraine have been a setback and economic activity is on pace to drop by 5% relative to the start of the pandemic in late 2019.
"In low-income countries -- especially the poorest -- the damage is stark," the bank said. "In more than one-third of these countries, per capita incomes in 2024 will still be below 2019 levels."
In the advanced economies, meanwhile, growth in the United States, the world's largest economy, could dip below 1% by next year due in large part to the hike in lending rates from the Federal Reserve.
In Europe, the contraction is already apparent in a forecast for a 0.4% expansion in 2023, down from the 3.5% growth rate last year.
June 6 (UPI) -- Global economic growth is on a sharp decline and the severity of the situation could easily trickle down to emerging markets, the World Bank said Tuesday.
The bank on Tuesday said the global economy is on pace to contract by 1% from 2022 to expand by only 2.1% this year. For emerging markets and developing economies, not including China, growth could drop from 4.1% last year to 2.9% this year.
Both of those forecasts represent deep downgrades from previous World Bank estimates.
"The world economy is in a precarious position," said Indermit Gill, the banks chief economist and senior vice president.
Most major economies are facing headwinds from inflationary pressures that have lasted for more than a year. Energy prices last year were buoyed by sanctions targeting Russia's energy sector in response to the war in Ukraine, though prices for food and rents also spiked.
Meanwhile, some support programs designed to help lower-income families during the COVID-19 pandemic have ended. While that's certainly the case for developed economies with the means to fund such programs, developing economies are also seeing a trickle-down impact from global inflation.
"Many developing economies are struggling to cope with weak growth, persistently high inflation, and record debt levels," said Ayhan Kose, a deputy chief economist at the bank. "Yet new hazards - such as the possibility of more widespread spillovers from renewed financial stress in advanced economies - could make matters even worse for them."
For developing economies, the World Bank found the pandemic and the shocks from the war in Ukraine have been a setback and economic activity is on pace to drop by 5% relative to the start of the pandemic in late 2019.
"In low-income countries -- especially the poorest -- the damage is stark," the bank said. "In more than one-third of these countries, per capita incomes in 2024 will still be below 2019 levels."
In the advanced economies, meanwhile, growth in the United States, the world's largest economy, could dip below 1% by next year due in large part to the hike in lending rates from the Federal Reserve.
In Europe, the contraction is already apparent in a forecast for a 0.4% expansion in 2023, down from the 3.5% growth rate last year.
In the Nairobi slum of Mathare, people use oil drums to distil chang’aa, a powerful and illicit alcohol © Amaury Falt-Brown / AFP
