OECD Raises Global Growth Outlook on U.S. Strength

Containers in the Port of Rotterdam are seen in Rotterdam, Netherlands, November 1, 2022. REUTERS/Piroschka van de Wouw/File Photo

Summary

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OECD raises US growth outlook, cuts euro zone
OECD sees Fed rate cut in Q2, ECB in Q3
Red Sea attacks could boost CPI 0.4 points

PARIS, Feb 5 (Reuters) – The global economy is on course to hold up better this year than expected only a few months ago as an improved outlook in the United States offsets euro zone weakness, the OECD said on Monday.

World economic growth is expected to ease from 3.1% in 2023 to 2.9% this year, better than the 2.7% expected in November in the Organisation for Economic Cooperation and Development’s last outlook.

In an update of its forecasts for major economies, the Paris-based OECD left its 2025 global estimate unchanged at 3.0%, when growth is expected to be boosted by major central banks rate cuts as inflation pressures subside.

The U.S. economy was expected to grow 2.1% in 2024 and 1.7% in 2025 as lower inflation boosted wage growth and triggers interest rate cuts, the OECD said, raising its 2024 forecast from 1.5% previously and leaving 2025 unchanged.

As China contends with real estate market wobbles and weak consumer confidence, its growth was seen slowing from 5.2% in 2023 to 4.7% in 2024 and to 4.2% in 2025, all unchanged from November forecasts.

With a slowdown in Germany weighing on the broader euro area, the shared currency bloc’s outlook had worsened since November, with its economy now expected pick up from 0.5% last year to only to 0.6% this year, down from 0.9% previously. In 2025, it was seen growing 1.3%, revised down from 1.5%.

While economic outlooks diverged among the major economies, inflation was cooling faster than expected since November in both the United States and euro area while unchanged in China.

That paved the way for rate cuts with the U.S. Federal Reserve expected to move in the second quarter and the European Central Bank to follow in the third quarter.

However, attacks on Red Sea shipping lanes could add to inflationary pressures, albeit modestly, the OECD said.

It estimated that if a surge in shipping costs persisted annual OECD import price inflation could increase by close to 5 percentage points, adding 0.4 percentage points to consumer price inflation after about a year.