Economy

OECD predicts modest growth but conflict risk remains

February 7, 2024, 3:05 AM

The global economy has shown 'real resilience' said OECD secretary-general Mathias Cormann

2024-25 GDP growth of 3%
War threatens some markets
Inflation continues to fall

Global growth is holding up and inflation is falling, but conflict in the Middle East represents a significant near-term risk, the Organisation for Economic Cooperation and Development (OECD) has said.

In its interim outlook published on Monday, the Paris-based organisation projected that GDP expansion worldwide would remain moderate at around 3 percent in 2024-2025.

Energy markets were the most vulnerable to Middle East instability, and increased consumer prices remain a possibility.

Growth in Saudi Arabia should improve to 4.2 percent in 2025 from 2.4 percent in 2024, the organisation said. Last month, the kingdom and the OECD signed a memorandum of understanding to strengthen cooperation and support reforms.

“The global economy has shown real resilience amid the high inflation of the past two years and the necessary monetary policy tightening,” OECD secretary general Mathias Cormann told a press conference.

Asia would continue to drive global growth as it did last year. However, emerging economies are likely to suffer due to the slowdown in most European countries.

India and Indonesia are expected to undergo the most robust expansion over the next two years, helped by a rise in investment, with GDP increasing by 6.2 percent and 5 percent per year respectively.

The two biggest world economies will suffer diminishing growth in 2024.

The US is projected to slow to 2.1 percent while China is expected to decelerate to just under 5 percent, “despite additional policy stimulus, reflecting subdued consumer demand, high debt, and the weak property market,” the OECD said.

“It is less than what we have seen from China in the past,” OECD chief economist Clare Lombardelli said. Demand in the Chinese economy is a major determinant of oil prices on which the oil exporting countries of the Middle East depend.

Falling inflation in major economies has opened the way to interest rate cuts, the OECD said.

“We expect inflation to be back to central bank targets by the end of 2025 in most G20 economies,” Cormann added.

Attacks by Houthis in Yemen on shipping in the Red Sea have led to spikes in shipping costs and lengthened delivery times. According to the OECD, these factors could result in renewed price pressures in the goods sectors.

“The attacks on ships on the Red Sea are having an impact on trade. Freight rates have more than doubled since the end of last year,” Lombardelli said.