09/25/2024 – 7:37
Global growth is stabilizing as the impact of central bank interest rate hikes dissipates and falling inflation boosts household incomes, the OECD said on Wednesday, marginally raising its outlook for this year.
The Organization for Economic Cooperation and Development forecasts that the global economy will grow 3.2% this year and next, increasing its forecast for 2024 from 3.1% previously and leaving 2025 unchanged.
As the lagged impact of monetary tightening evaporates, interest rate cuts will boost spending going forward as they benefit from lower inflation, the OECD said in an update to its latest economic outlook.
If the recent drop in oil prices persists, global inflation could be 0.5 percentage points lower than expected next year, the OECD said.
With inflation heading toward central banks’ targets, the OECD projected the U.S. Federal Reserve’s interest rate to decline to 3.5% by the end of 2025, from 4.75% to 5% currently, and the European Central Bank to cut rates to 2.25% from 3.5% now.
The OECD raised its outlook for Brazil’s economy, projecting growth of 2.9% in 2024 and 2.6% in 2025, compared with May forecasts of 1.9% this year and 2.1% next year. The Brazilian government expects growth of 3.2% this year.
U.S. growth is expected to slow to 1.6% in 2025 from 2.6% this year, although interest rate cuts will help cushion the slowdown, the OECD said, cutting its 2025 estimate from a 1.8% forecast in May.
China’s economy, the world’s second-largest, is expected to slow to 4.5% in 2025 from 4.9% in 2024 as government stimulus spending is offset by falling consumer demand and a housing slump.
The euro zone will help offset slower growth in the two biggest economies next year, with expansion in the 20-nation bloc expected to nearly double to 1.3% from 0.7% this year as incomes rise faster than inflation.
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