The global economy will likely expand 2.9 percent in 2024, revised upward from an earlier estimated 2.7 percent amid expectations that ebbing inflation will lead to a shift to U.S. interest rate cuts, the Organization for Economic Cooperation and Development said Monday.
The Paris-based organization expects the United States to report 2.1 percent growth this year, up from 1.5 percent as of November, helped by strong private consumption. The outlook for the eurozone was cut to 0.6 percent from 0.9 percent, while Japan is projected to see its growth rate unchanged from the previous forecast at 1.0 percent, roughly half of 1.9 percent a year before.
Despite the upward revision to the overall outlook, global growth is still expected to moderate from 3.1 percent in 2023, slowing for the third straight year, according to the OECD's economic outlook report.
The moderation comes after a spate of interest rate hikes by the U.S. Federal Reserve and other major central banks to tackle elevated prices, along with slowing growth in China amid real estate troubles.
While financial markets expect the Fed will start cutting rates this year, possibly in May, and the European Central Bank is also seen as moving to reduce rates, Japan may see an end to its negative rate policy this year.
In 2025, global growth will likely pick up to 3.0 percent, supported by a "widespread easing of monetary policy" as inflation converges on central bank targets and real incomes show steady recovery, though the OECD warned of geopolitical risks in the Middle East amid the ongoing war between Israel and Hamas militants.
"A widening or escalation of the conflict could disrupt shipping more extensively than presently expected, intensify supply bottlenecks, and push up energy prices if traffic is interrupted in the key routes for the transport of oil and gas from the Middle East to Asia, Europe and the Americas," the OECD said.
Major economies will likely see moderate growth in 2025, with 1.7 percent for the United States, 1.3 percent for the eurozone and 1.0 percent for Japan. The forecasts for the euro area and Japan were slightly trimmed from 1.5 percent and 1.2 percent as of November.
The OECD report cited that, in Japan, wage growth is projected to strengthen gradually, but growth of its gross domestic product is projected to ease in both 2024 and 2025 as "macroeconomic policies begin to be tightened."
China, a non-OECD member, will likely see its economy expand 4.7 percent this year and then 4.2 percent the following year, unchanged from earlier.
While monetary policy should be "restrictive" for some time, it needs to be "prudent to ensure that underlying inflationary pressures are durably contained," the OECD said. There is scope for rate cuts in the United States and the eurozone in the second and third quarters of 2024, respectively, it added.
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