OECD – Economic Outlook, 2023

The global economy is facing challenges such as persistent inflation and subdued growth prospects. Although GDP growth has been stronger than expected in 2023, it is now slowing down due to tighter financial conditions, weak trade growth, and lower business and consumer confidence. Financial conditions are restrictive, with real interest rates rising in recent months. Activity has slowed in sectors sensitive to interest rates, such as housing markets, and in economies reliant on bank-based finance, especially in Europe. Geopolitical tensions are also adding uncertainty to the near-term outlook. Headline inflation has decreased in almost all economies, alleviating pressure on household incomes, but core inflation remains relatively high. Global GDP growth is expected to ease to 2.7% in 2024 and then increase to 3% in 2025 as real income growth recovers and policy interest rates are lowered. There is a divergence in growth across economies, with emerging-market economies generally performing better than advanced economies, and Europe experiencing relatively subdued growth compared to North America and major Asian economies. Consumer price inflation in the G20 economies is projected to gradually decline, reaching 5.8% in 2024 and 3.8% in 2025, from 6.2% in 2023. By 2025, inflation is expected to be on target in most major economies. Risks to the global outlook remain tilted to the downside. Heightened geopolitical tensions, rising trade restrictions, inward-looking policies, and the restructuring of global value chains are contributing to the uncertain outlook for global trade, which is crucial for productivity and development. Financial vulnerabilities could increase in emerging-market and developing economies, and debt-servicing pressures could rise in lower-income countries if global financial conditions become tighter than expected. On the upside, if the global economy and financial markets continue to withstand the tightening of monetary policy, there could be better-than-expected growth in 2024 while inflation eases. However, inflation persistence could also prolong if households are cautious with their excess savings accumulated during the pandemic.