Global economic growth is likely to accelerate slightly in 2024 and 2025, driven by falling interest rates, rising real wages, and declining oil prices, according to the Organization for Economic Cooperation and Development (OECD).
Global output is expected to grow by 3.2% in both years, up from 3.1% last year. That was a slight upgrade from the 3.1% growth it forecast in May. However, uncertainties remain, particularly regarding the impact of high interest rates on demand and the potential for oil prices to surge due to Middle Eastern conflicts.
The OECD's upgraded forecast is largely due to stronger-than-expected growth in the U.S., India, Brazil, and the U.K. In contrast, Germany and Japan are struggling, with Germany nearing stagnation and Japan facing a mild contraction.
Despite the improved outlook, consumer confidence remains low, partly because food prices remain high, especially compared to wages. For example, in the U.S., food price inflation outpaced wage growth by four percentage points since 2019, and the gap is even larger in Europe and South Africa.
Falling oil prices may help curb inflation, potentially reducing it by half a percentage point globally, but oil prices remain vulnerable to geopolitical tensions. If oil prices continue to drop, central banks may lower interest rates faster, boosting growth in non-oil-producing countries.
The OECD predicts the Fed will cut rates by 1.5 percentage points by 2025, with the European Central Bank lowering rates by 1.25 points. However, higher interest rates are still weighing on growth, and as debts mature, many businesses and households face rising borrowing costs.
The OECD left its forecast for U.S. growth in 2024 at 2.6%, and also retained its 4.9% projection for China. But OECD said that a recent Chinese stimulus package could lead to further upward revisions in future forecasts.