A crane lifts a shipping container at an automated container port in Tianjin, China, on Jan. 16.Mark Schiefelbein/The Associated Press
The global economy will slow slightly next year but the risk of a hard landing has subsided despite high levels of debt and uncertainty over interest rates, the Organization for Economic Cooperation and Development said on Wednesday.
Global growth is set to moderate from 2.9 per cent this year to 2.7 per cent in 2024 before picking up in 2025 to 3.0 per cent, the Paris-based policy forum said in its latest Economic Outlook.
Growth in advanced economies that make up the OECD’s 38 members was seen headed for a soft landing, with the United States holding up better than expected so far.
“Our central projections are for a soft landing, but that cannot be taken for granted,” OECD chief economist Clare Lombardelli told a news conference.
“Monetary policy needs careful calibration to bring inflation to targets while minimizing the impact on growth. These judgments are now harder than earlier in the cycle and the risks of policy errors are greater,” she added.
The OECD forecast U.S. growth would slow from 2.4 per cent this year to 1.5 per cent next year, revising up its estimates from September when it predicted U.S. growth of 2.2 per cent in 2023 and 1.3 per cent in 2024.
Though the risk of a hard landing in the United States and elsewhere had eased, the OECD said that the risk of recession was not off the table given weak housing markets, high oil prices and sluggish lending.
China’s economy was also expected to slow as it grapples with a deflating real estate bubble and consumers save more in the face of greater uncertainty about the outlook.
Its growth was seen easing from 5.2 per cent this year to 4.7 per cent in 2024 – both marginally higher than expected in September – before slowing further in 2025 to 4.2 per cent, the OECD forecast.
In the euro area, growth was seen picking up from 0.6 per cent this year to 0.9 per cent in 2024 and 1.1 per cent in 2025 as Germany – the region’s largest economy – emerged from a recession this year.
Nonetheless, the OECD warned that, because of the high level of bank financing in the euro zone, the full impact of interest rate hikes remained uncertain and could weigh more on growth than expected.
Meanwhile, Japan, the only major advanced economy yet to hike interest rates in the current cycle, was expected to see growth slow from 1.7 per cent this year to 1.0 per cent in 2024 before picking up to 1.2 per cent in 2024.
While countries’ growth outlooks were diverging, they shared similar fiscal pressures, with debt burdens projected to keep rising for years to come in G7 countries, the OECD warned.
“Governments need to act to prevent unsustainable debt paths. Needed reforms include medium-term plans to curb deficits over time, reducing the cost of aging and to preserve spending that is effective and efficient,” Lombardelli said.