The world economy, which showed unexpected strength this year, is expected to weaken in 2024, burdened by wars, still high inflation and interest rates that remain high.
The Paris-based Organization for Economic Cooperation and Development estimated on Wednesday that economic growth will slow to 2.7% in 2024, compared to the 2.9% expected this year. That would make it the calendar year with the least growth since 2020, the year of the pandemic.
One key factor is that the OECD expects the world’s two largest economies, the United States and China, to slow next year. The forecast for the United States is for growth of only 1.5% in 2024, compared to 2.4% in 2023, while the increase in interest rates by the Federal Reserve – 11 increases since March 2022 – continues to restrain growth.
The higher rates set by the Fed have made borrowing more expensive for consumers and businesses and, in the process, helped keep inflation from a four-decade high in 2022. The OECD estimates that inflation will will fall in the United States from 3.9% this year to 2.8% in 2024 and 2.2% in 2025, slightly above the Fed’s 2% target.
For its part, the Chinese economy, hit by a devastating real estate crisis, rising unemployment and loss of momentum in exports, will grow by 4.7%, from 5.2% this year. “Consumption growth in (China) is likely to remain limited due to rising precautionary savings, higher expectations for job creation and worsening uncertainty,” the OECD said.
Another factor contributing to the global slowdown is the 20 countries that use the euro. The eurozone has suffered from rising interest rates and rising energy prices following Russia’s invasion of Ukraine. The OECD expects collective growth in the eurozone to be 0.9% next year, a weak number but better than the 0.6% in 2023.
The global economy has suffered failure after failure since early 2020: the outbreak of COVID-19, a rise in inflation after an unexpectedly strong recovery from the pandemic, war in Russia against Ukraine and painful interest rates as the central banks say They intervened aggressively to stop the acceleration of consumer prices.
But despite all that, the economic expansion has unexpectedly continued. The OECD predicted a year ago global growth of 2.2% in 2023. That forecast turned out to be too pessimistic, but the organization now warns that the relief may end.
“Growth is stronger than expected in 2023 so far,” the OECD said in its 221-page report, “but is now moderating because of the impact of financial conditions, weak trade growth and low confidence in business and consumers is becoming more and more noticeable. .”
The OECD also warned that the world economy faces new risks arising from increased geopolitical tensions in the face of war between Israel and Hamas, “especially if the conflict spreads.”
“That could mean significant disruptions to energy markets and important trade routes,” the organization said.