The global economy is showing signs of resilience, with the Organization for Economic Cooperation and Development revising its 2024 growth forecast upwards, indicating a potential escape from a stagflationary rut.
What Happened: The OECD has raised its global growth forecast for 2024 to 3.1%, up from the previous 2.9%, Bloomberg reported on Friday. This revised forecast is due to stronger growth and a faster-than-expected decline in inflation across several countries.
The U.S., China, and India are among the countries contributing to this improved outlook. The OECD predicts that the global economy will continue to expand at a rate of 3.2% next year.
"Cautious optimism has begun to take hold in the global economy, despite modest growth and the persistent shadow of geopolitical risks," OECD Chief Economist Clare Lombardelli said. "Inflation is easing faster than expected, labor markets remain strong with unemployment at or near record lows."
Despite this positive shift, the OECD warns that the pace of expansion may not return to pre-pandemic and energy crisis levels of 3.4%. The organization also notes that potential conflicts in the Middle East or prolonged price increases could still disrupt the economy.
"Monetary policy needs to remain prudent to ensure that underlying inflationary pressures are durably contained," the OECD said.
Inflation is expected to ease more than previously projected, except in the U.S., where the OECD now anticipates a 2.5% increase in prices this year, up from the previous 2.2%. However, the organization believes that U.S. policymakers should be able to reduce interest rates in the second half of the year.
See Also: Private Employment Increases By 192,000, Beats Forecasts: ‘Hiring Was Broad-Based In April’
Why It Matters: The OECD’s revised forecast offers a glimmer of hope for the global economy, which has been grappling with concerns of stagflation, particularly in the U.S.
Just last week, experts warned of a potential stagflation scenario in the U.S., as slow growth and rising inflation rates raised fears of an economic downturn worse than a recession.
Despite these concerns, Federal Reserve Chair Jerome Powell maintained hopes for a rate cut in 2024, acknowledging that a surge in inflation has dented policymakers’ confidence in the ebbing of price pressures.
The OECD’s latest assessment aligns with the slightly more positive views of other international institutions, including the International Monetary Fund, which also upgraded its forecasts last month, according to the report.
Read Next: Is Hawkish Shift On Inflation Imminent? Wall Street Analysts, Traders Brace For Fed Impact
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