In a departure from this year’s surprising resilience, the global economy is poised for a downturn in 2024 due to the impact of wars, lingering inflation, and sustained high interest rates, according to the Paris-based Organization for Economic Cooperation and Development (OECD). The OECD’s estimate, revealed on Wednesday, indicates a slowing international growth rate, projecting a decrease from the expected 2.9% pace in the current year to 2.7% in 2024 – marking the slowest calendar-year growth since the pandemic year of 2020.
Despite the somber forecast, OECD Secretary-General Mathias Cormann conveyed a cautious optimism, stating, “we are projecting that recessions will be avoided almost everywhere” during a news conference. However, he acknowledged lingering risks, including the persistence of high inflation and potential impacts on commodity prices due to conflicts such as the Israel-Hamas war and Russia’s intervention in Ukraine.
A significant contributor to the anticipated slowdown is the expected deceleration of the world’s two largest economies, the United States and China, in the coming year. The U.S. economy is forecasted to expand by 1.5% in 2024, a decrease from 2.4% in 2023, as the Federal Reserve’s series of interest rate increases – totaling 11 since March 2022 – continue to curb growth. These higher rates, while aiding in mitigating inflation from its peak in 2022, have made borrowing more expensive for consumers and businesses.
China, grappling with a real estate crisis, rising unemployment, and slowing exports, is expected to witness a growth rate of 4.7% in 2024, down from 5.2% this year. The OECD highlighted factors such as increased precautionary savings, gloomier employment prospects, and heightened uncertainty contributing to subdued consumption growth in China.
Further compounding the global economic slowdown are the 20 European Union countries sharing the euro currency. Elevated interest rates and surges in energy prices following Russia’s invasion of Ukraine have adversely affected these nations. The OECD anticipates the collective growth of the eurozone to reach 0.9% in 2024, a marginal improvement from the predicted 0.6% growth in 2023.
OECD Chief Economist Clare Lombardelli emphasized the divergent outlooks for the U.S. and Europe, stating, “A key takeaway today is the stronger outlook for the U.S., which we’ve revised up for 2024, but a weaker outlook for Europe, which we’ve revised down.” Lombardelli pointed to the impact of last year’s spike in energy prices after Russia curtailed natural gas supplies to Europe, causing significant disruptions and contributing to a cost-of-living crisis.
While the global economy has weathered a series of shocks since 2020, including the COVID-19 pandemic, inflation resurgence, the war in Ukraine, and high borrowing rates, the OECD warns that the current moderation in economic expansion may signal the end of the unexpected resilience observed in 2023. The organization stressed the emergence of new risks tied to heightened geopolitical tensions, particularly in the Israel-Hamas conflict, which could lead to significant disruptions in energy markets and major trade routes.