OECD trims global growth forecast, warns of conflict risk

PARIS — The world economy is likely headed for a soft landing next year, the Organisation for Economic Co-operation and Development (OECD) said on Wednesday as it pared back its growth forecast, but warned the Hamas-Israel conflict could throw a spanner in the works. 

In its latest economic outlook, the OECD trimmed its forecast for global growth this year to 2.9 per cent, down from the 3 per cent it forecast in September. 

The grouping of developed industrialised countries said it sees global growth slowing to 2.7 per cent next year, unchanged from its previous forecast, which the OECD noted would be the lowest annual rate since the global financial crisis, aside from the first year of the COVID-19 pandemic.

A rebound to 3 per cent growth in 2025 is contingent on inflation slowing further and Asian economies maintaining their fast pace of growth.

"The broad picture for the world economy over the next two years is one of a moderate slowdown followed by eventual normalisation, with growth returning to near-trend rates, and inflation converging back to central bank targets by 2025," said the OECD.

The OECD's chief economist, Clare Lombardelli, said in her introduction to the report that they "are projecting a soft landing for advanced economies, but this is far from guaranteed".

The OECD still sees near-term risks to its forecast tilted to the downside. 

It pointed to the heightened geopolitical tensions due to the Hamas-Israel conflict as "a key source of near-term uncertainty" for the global economy.

"If the conflict were to intensify and broaden within the wider region, there are much stronger risks that could slow growth and push up inflation," said the OECD, which advises its 38 member countries on economic policy.

While the OECD had already projected a temporary but pronounced slowdown for Israel, it said the broader direct effects from the conflict for the world economy have so far been "relatively limited".

The slowdown in global growth is being driven by higher interest rates brought in by central banks to slow inflation, but growth should rebound as rates begin to come down along with inflation beginning next year.

The OECD raised its growth forecasts for the US economy by two tenths of a percentage point for this year and 2024, to 2.4 and 1.5 per cent respectively. It sees a modest pick up to 1.7 per cent growth in 2025.

Despite growth nearly stalling in the eurozone last quarter, the OECD held onto its estimate of 0.6 per cent growth this year, but trimmed the 2024 forecast to 0.9 per cent.

It sees Britain's economy slowly gathering steam with growth rising to 0.5 per cent this year, 0.7 per cent in 2024 and 1.2 per cent in 2025 as the country gradually recovers from a cost-of-living crisis. 

Japan is also expected to experience a slowdown next year, with growth slowing from 1.7 to 1 per cent before edging up to 1.2 per cent in 2025. 

The OECD marginally increased its forecast for growth in China to 5.2 per cent this year.

But the world's second largest economy is still expected to see growth slow to 4.7 per cent in 2024 and 4.2 per cent in 2025 as gloomy consumers save rather than spend amid weak job creation and financial stress brought on by a real estate crisis.