The OECD has revised downward the growth rate of the world economy for this year and next year, which is expected to be below 3% in both cases. According to the OECD analysis, high policy interest rates in major countries will dampen economic activity. However, China’s economy is “gradually stabilizing” and is expected to grow by 5.2 % in 2023.
The Organization for Economic Co-operation and Development (OECD) announced on November 29th the results of the economic forecast for China’s economy, “has bottomed out in July to September,” said the view. The OECD predicted that the world economic growth rate in 2023 will be less than 3%, downgraded to 2.9%. OECD analyzed that the high policy interest rates in major countries will inhibit economic activity.
OECD noted that in most parts of the world, monetary tightening is dampening economic activity in interest rate-sensitive areas such as real estate markets. It also emphasized that the impact is particularly pronounced in Europe, which is highly dependent on indirect finance.OECD explained that not only is the business sentiment index declining in various countries, but also the consumer confidence index is at a low level, reflecting the slowdown in growth.
The OECD forecasts world economic growth to be below 3% in 2024, at 2.7%, with a recovery to 3% in 2025. It is expected that the US Federal Reserve Board (FRB) will start cutting interest rates in the second half of 2024 and the European Central Bank (ECB) in 2025 to support the economy.
In China, where the economy has been in a precarious state since early 2023 due to a real estate slump, the OECD sees the economy “gradually stabilizing” thanks to broad policy stimulus. The forecast is for growth of 5.2% in 2023, both revised up by 0.1 percentage points from the previous forecast.
Regarding the US economy, the OECD noted that increased savings during the New Crown epidemic supported subsequent household consumption. However, the economy is expected to deteriorate if an increase in policy rates has a greater impact than expected or becomes a strain on the financial system.
Japan’s growth rate for 2023 is projected at 1.7%, revised slightly downward.The OECD analysis cites strong uncertainty and rising prices as dampening personal consumption and investment.
OECD believes that the downside risks to the world economy in the near term are more likely than the upside. In particular, the conflict between Israel and Hamas will cause economic growth to slow and inflation to accelerate.