According to the OECD, the global economy will slow next year due to inflation, high interest rates and war

WASHINGTON (`) — The global economy, which has proven surprisingly resilient this year, is expected to falter next year amid…

WASHINGTON (`) — The global economy, which has proven surprisingly resilient this year, is expected to falter next year under the strain of wars, still-high inflation and persistently high interest rates.

The Paris-based Organization for Economic Co-operation and Development estimated on Wednesday that international growth would slow to 2.7% in 2024 from an expected 2.9% this year. That would be the slowest calendar year growth since the pandemic year of 2020.

A key factor is that the OECD expects the world’s two largest economies, the United States and China, to slow next year. The U.S. economy is expected to grow just 1.5% in 2024, down from 2.4% in 2023, as the Federal Reserve’s interest rate hikes – 11 since March 2022 – continue to slow growth.

The Fed’s higher interest rates have made borrowing significantly more expensive for consumers and businesses, helping to slow inflation from its four-decade peak in 2022. The OECD expects U.S. inflation to fall from 3.9% this year to 2.8% in 2024 and 2.2% in 2025, just above the Fed’s target of 2%.

China’s economy, hit by a devastating housing crisis, rising unemployment and slowing exports, is expected to grow 4.7% in 2024, up from 5.2% this year. China’s “consumption growth is likely to remain subdued due to increased precautionary austerity measures, a bleaker outlook for job creation and increased uncertainty,” the OECD said.

The 20 countries that use the common currency, the euro, are also likely to contribute to a global slowdown. They suffered from increased interest rates and the rise in energy prices that followed Russia’s invasion of Ukraine. The OECD expects overall euro zone growth to be 0.9% next year – weak but still an improvement on forecast growth of 0.6% in 2023.

The global economy has experienced one shock after another since the start of 2020 – the outbreak of COVID-19, a resurgence in inflation as the recovery from the pandemic was unexpectedly strong, Moscow’s war on Ukraine and painfully high borrowing rates that central banks are aggressively combating the acceleration of consumer prices occurred.

Nevertheless, despite all this, economic growth has proven to be unexpectedly robust. A year ago, the OECD forecast global growth of 2.2% for 2023. This forecast turned out to be too pessimistic. Now, the organization warns, the respite may be over.

“Growth has been stronger than expected so far in 2023,” the OECD said in its 221-page report, “but is now slowing as the impact of tighter financing conditions, weak trade growth and lower business and consumer confidence becomes increasingly felt .”

In addition, the OECD warned that the global economy faces new risks due to increasing geopolitical tensions in the wake of the Israel-Hamas war – “particularly if the conflict spreads.”

“This could lead to significant disruption to energy markets and key trade routes,” it said.

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