The latest on the world economy, according to the OECD

The global economy is showing signs of improving, but the recovery will be weak, the Organisation for Economic Co-operation and Development (OECD) says. Its latest Economic Outlook predicts global GDP will grow 2.7% in 2023, with a modest improvement of 2.9% in 2024.

The prediction for this year is the lowest rate of growth since the global financial crisis, with the exception of the pandemic. However, this below-trend growth is expected to gradually pick up throughout next year as inflation moderates and real incomes strengthen.

The headline inflation rate across OECD nations is also projected to continue its decline, from 9.4% in 2022 to 6.6% in 2023 and 4.3% in 2024. This is driven by the effects of tighter monetary policies feeding through as well as falling energy prices.

But core inflation – removing the impact of energy and food prices – continues to prove sticky, partly driven by increasing service prices.

For many people, the impact of high inflation and modest wage increases means real wages fell in 2022. This decline is expected to end in 2023, which will help address the falling levels of disposable income available to households.

The improving economic climate is on a fragile footing, however. The war in Ukraine remains a concern and will continue to impact global energy prices, among other factors. And the comparatively mild winter that offset some of the increased energy prices last year may well not be repeated.

This sentiment is reflected in the World Economic Forum’s latest Chief Economists Outlook, which finds that while there is nascent optimism around the economy, inflationary pressures and tighter financial conditions mean further disruption is likely this year.

The OECD recommends three key measures by governments to support the recovery.

Firstly, they must continue to prioritize getting inflation down, targeting underlying inflationary pressures through restrictive monetary policies. This may require further interest rises in some economies where core inflation is persistent, the organization notes.

Secondly, as food and energy prices decline, fiscal interventions and cushions to support households through the cost of living crisis need to become more targeted towards the most vulnerable.

And thirdly, spending that supports growth should be prioritized, alongside supply-boosting structural reforms. This will help tackle high levels of public debt and budget deficits. Longer-term spending pressures from ageing populations and the green transition, for example, will also need to be addressed.