ATFX-OECD: Limited room for interest rate cuts before 2024, global economy is set to take a hit!

The OECD expects the global economy to slow as higher interest rates weigh on economic activity and Asia's recovery disappoints.

According to the latest OECD forecast, global economic growth will slow to 2.7% by 2024 (previously forecast at 2.9%), following growth of 3% this year (previously forecast at 2.7%). Except for 2020, which is affected by the COVID-19 pandemic,This would be the weakest annual growth since the global financial crisis.

Clare Lombardelli, the OECD's chief economist, said at a news conference on Tuesday that "while high inflation continues to ease, the global economy remains in trouble. We are facing the twin challenges of inflation and low growth."

The Paris-based organization has warned that...Its forecasts face downside risksDue to the fact that the impact of interest rate hikes may be greater than expected, and inflation may persist, major central banks still need to tighten monetary policy further.

"The global economy started 2023 stronger than expected, helped by lower energy prices and the reopening of China, but is expected to slow down thereafter," the OECD said. "The impact of tighter monetary policy is becoming more pronounced, with lower business and consumer confidence."

The bleak outlook will be a test for central bankers, whose anti-inflation effects have so far continued to feed through to the economy, with politicians fearing a choke in activity.

The European Central Bank raised interest rates for the 10th time in a row last week, but hinted it may have peaked. The Federal Reserve is expected to hold its ground this week.

However,The OECD warns central banks not to ease policyAlthough headline inflation is lower, core inflation remains stubborn in many countries, the report said.The scope for any rate cuts is limited "until 2024".

Inflation forecasts (black: headline inflation; red: core inflation)

The OECD said "monetary policy needs to remain restrictive until there are clear signs that underlying inflationary pressures have abated on a sustained basis".

The 25 per cent rise in oil prices since May has also led to higher inflation in some countries, depending on their risk exposure and whether they are fossil fuel importers or exporters.

"This [higher oil prices] is clearly unwelcome," she said. "Oil prices are likely to continue to fluctuate in the fight against inflation. That's one of the reasons we highlight it as a risk. From what we know, it obviously leads toHousehold budgets and needs are being squeezed”。

Specifically, the OECD downgraded its eurozone growth forecast for this year and next, predicting that Germany's economy will contract by 0.2% in 2023, making it the only G20 member other than Argentina to be mired in an economic downturn. Moreover, while the US economy will expand faster this year than forecast in June, its GDP growth in 2024 is expected to slow to 1.3% from 2.2% in 2023.

GDP growth forecast

The group warned that the government should not stimulate economic growth by increasing fiscal spending. On the contrary, itCall for scaling back supportTo rebuild room for future investment challenges and avoid triggering the inflation that central banks hope to contain.