The OECD warns that Europe is falling behind other advanced economies

The OECD warns that Europe is falling behind other advanced economies

VALENCIA (EP). Global economic growth is slowing as the impact of monetary tightening to combat high inflation is transferred to activity, according to the Organization for Economic Cooperation and Development (OECD), which warns of a trajectory of greater expected weakness. for Europe about the United States and the leading economy in Asia.

“The pace of growth has been uneven. In general, emerging markets have fared better than advanced economies. Growth in Europe has lagged behind North America and the leading economies of Asia,” said the OECD’s chief economist, Clare Lombardelli in the latest edition of the ‘World Economic Outlook’ report.

The advanced economic think tank acknowledged that the global economy continues to face the challenges of persistent inflation and lowered growth prospects, adding that while GDP expansion was stronger than expected in 2023, It is now moderating as the effects of tighter financial conditions, the weak growth of trade and the drop in business and consumer confidence are more felt.

Financial conditions are tight and activity is slow in interest rate-sensitive sectors, especially real estate markets, and in economies that rely on bank financing, especially in Europe, it added.

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Likewise, it warned that growing geopolitical tensions also contributed to uncertainty over the short-term. On the other hand, although inflation has slowed in almost all economies, easing the pressure on household incomes, the underlying rate remains relatively high.

In its new forecasts, the OECD predicts that the world GDP will grow by 2.9% this year, a tenth lower than the estimate in September, while continuing to 2.7% for 2024 and expecting an expansion of 3% for 2025.

Regarding the main economies, the organization revised upward its projections for the United States, to a growth of 2.4% in 2023 and 1.5% in 2024, two tenths better each year. than previously estimated, while In 2025 an expansion of 1.7 % is expected.

In the case of the euro zone, although the OECD maintained its growth forecast of 0.6% for this year, it cut that for 2024 by two tenths, to 0.9%, although it is confident of a rebound of 1.5% in 2025 . . .

Among the main economies of the eurozone, Germany will close 2023 with a decrease in GDP of 0.1% to expand by 0.6% in 2024 and 1.2% in 2025, while France will grow by 0.9% this year and 0.8% next. , with expansion. of 1.2% in 2025. In the case of Italy, the activity will grow in 2023 by 0.7% this year and the next, accelerating to 1.2% a year after.

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“The risks in the short term of the global outlook remain skewed to the downside,” warns the OECD study with special attention to the impact on the energy markets and the trade of the rising geopolitical tensions, which will slow down to ease inflation.

“Continued cost pressures, further increases in energy and food prices, or signs of an upward trend in inflation expectations could pressure central banks to keep policy rates higher.” than expected, which may create more stress in the financial markets,” he warned.

Slow landing

At the press conference to present the report, the Secretary General of the OECD, Mathias Cormannshowed that the institution’s projections “are consistent with a soft landing scenario”, with inflation meeting the central banks’ objectives for 2025.

“We project that recessions will be avoided almost everywhere and that the increase in unemployment from current levels will be relatively modest,” he said.

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However, the Australian cautioned that, although there is an improvement in the prospects for a soft landing, there is a way to go and the risks remain very low, as inflation remains above target in all major OECD economies and there is still much uncertainty as to whether it will return to target without further efforts.

Regarding the greater weakness expected for the eurozone in relation to the United States, Cormann recalls that the dominant difference between what is seen in the United States and the eurozone is due to the effect of the increase in energy prices, pointing out that The euro area more exposed as an energy importer to changes in prices.

In the same way, he emphasized that another difference between the two economies is due to the fact that in the United States the growth of consumption is stronger, partly because of the level of support, but also because American consumers turn to the greater the size of the savings. accumulated to support consumption growth.