Global growth revised upwards but still fragile, warns the OECD

World gross domestic product (GDP) is expected to increase by 2,6% in 2023, against 2,2% anticipated last November by the Organization for Economic Co-operation and Development (OECD), according to its outlook published on Friday. Last year, global growth was 3,2%.

In 2024, global growth is expected to accelerate to 2,9%, 0,2 percentage points higher than previously forecast.

For the time being, however, the war in Ukraine "continues to have profound economic and social repercussions", noted the Secretary General of the OECD Mathias Cormann during a press conference.

"Compared to November, the economic outlook is slightly more optimistic, but it remains fragile," he said.

Economies will thus continue to suffer the repercussions of the increase in key rates decided by central banks to fight against inflation, which remains the number one problem.

Moreover, these more restrictive monetary policies put in place to combat rising prices "could continue to expose financial vulnerabilities linked to high indebtedness and the excessive valuation of certain assets", as recently shown by the bankruptcy three US banks, according to the OECD report.

However, the organization rules out any risk of a "systemic crisis" comparable to that of 2008.

"We have created stronger regulations, central banks and regulators have learned from previous crises (...) and most well-capitalized banks," assured the organization's chief economist Alvaro Pereira.

“Even if there is obviously an increased risk for financial stability, we believe that the risks of a broader contagion are rather limited”, abounded Mathias Cormann.

The difficulties of Credit Suisse, whose action plunged this week, are due to a "market reaction" following the bankruptcy of Silicon Valley Bank, explained the leader of the organization, noting that "the Swiss authorities had acted quickly to limit the risk of contagion". The action, however, plunged again Friday at midday, a sign of the difficulties encountered by the second Swiss bank to regain the confidence of the markets.

But despite the turbulence this may cause in the financial sector in particular and the economy in general, the fight against rising prices must remain the priority of central banks, "until there are clear signs lasting reduction in underlying inflationary pressures" (excluding food and energy), estimates the OECD.

Achilles' heel

Another Achilles' heel for many countries is property prices, which have started to fall, with possible cascading effects on other sectors.

Despite these risks, a "gradual improvement" in the general economic situation is expected throughout 2023 and 2024, with some easing of inflation.

In the G20 countries, which represent some 85% of global GDP, the rise in prices should thus drop from 8,1% in 2022 to 4,5% in 2024, anticipates the OECD.

Global growth should also benefit from "the complete reopening of China" post-Covid", whose growth should rebound to 5,3% in 2023, against 3% last year.

The OECD has raised its outlook for 2023 for most of the world's major economies, but lowered it for Japan, South Korea, Brazil, Argentina and Turkey.

Germany would now escape a recession for this year with growth of 0,3%, against 0,7% for France (+0,1 point compared to November).

US growth is expected to reach 1,5% in 2023, against 0,5% previously forecast.

Finally, India should have the strongest growth of the G20 this year with 5,9%.

At the global level, "demand should be preserved thanks to a further easing of the savings rates of households which have not yet fully used the additional savings accumulated during the pandemic", explains the institution.

Faced with soaring energy and food prices, the organization recommends that states introduce aid "more targeted to those who need it most".

With regard to energy in particular, aid "should promote energy efficiency" in order to avoid subsidizing activities that are not sustainable in the medium term due to climate change.