The Organisation for Economic Co-operation and Development (OECD) updated its global economic outlook report on November 29, analyzing trends and prospects for the next two years. The organization anticipates that while the global economy will continue to face challenges of inflation and low growth, it shows resilience with a moderate slowdown, likely avoiding a hard landing.
The report indicates that due to negative factors such as tightening financial conditions, weak trade growth, and declining business and consumer confidence, global economic growth is expected to slow from this year's 2.9% to 2.7% next year, before rebounding to 3% in 2025. The growth of the global economy remains highly dependent on rapidly growing Asian economies.
There is an imbalance in growth rates across different regions. Developed economies generally grow slower than emerging markets, with Europe lagging behind North America and major Asian economies.
The report also analyzes the potential economic consequences of the Israel-Palestine conflict, stating that an escalation could overturn current global economic expectations, potentially causing severe disruptions to energy markets and major trade routes, especially impacting European economies with noticeable effects from rising energy and food prices.
Regarding the performance of major economies, many are beginning to lose momentum. This is evident in weak PMI data, with India being a notable exception; slowing credit growth; and persistently low consumer confidence. These factors indicate a weakening global growth outlook amid widening disparities among different countries.
In the Eurozone, GDP growth is expected to rise from 0.6% this year to 0.9% next year, and then to 1.5% the following year.
The report suggests that Europe faces "particularly difficult" challenges for a full economic recovery, due to the close impact of high interest rates and rising energy costs dragging down income. On the other hand, the full impact of the Eurozone's tightening monetary policy is yet to be seen, and the economic hit could be more severe than expected. However, looking ahead, consumption is expected to be robust due to tight labor markets and slowing inflation leading to real income growth.
In contrast, GDP growth in the United States and many other major commodity-producing economies remains relatively strong.
In North America, domestic demand growth in the United States and Canada is expected to slow until mid-2024 due to tightening monetary and financial conditions, slowing job growth, and a moderate rise in unemployment rates. The U.S. is expected to slow to 1.5% growth next year, with Canada slowing to 0.8%. The following year, the U.S. is expected to recover to 1.7% growth, with Canada at 1.9%.
Among specific countries, India, Indonesia, and China are expected to lead G20 economies in growth. India's growth is projected at 6.1% and 6.5% for the next two years, Indonesia at 5.2% for both years, and China at 4.7% and 4.2%, significantly above the G20 average of 1.4% and 1.8%. China's growth rate for this year has been revised up to 5.2%.
The lowest-ranking countries are Argentina, Germany, Italy, and Russia. Argentina is expected to see a contraction of -1.3% next year, turning positive to 1.9% the following year. Germany (0.6%) and Italy (0.7%) are next to last for next year, with Russia being the lowest the following year at 1%.
Among OECD countries, Costa Rica leads the 38 member nations with growth rates of 3.5% and 3.6% for the next two years. The Netherlands ranks at the bottom (0.5% and 1.1%). The average for OECD countries is 1.4% and 1.8%.
Israel's economy is expected to grow by 1.5% next year and 4.5% the following year. The report states that the current war is having a significant impact on Israel's economy, as private consumption and investment growth have already slowed significantly. As a result, the organization has revised down Israel's GDP growth forecast from 2.9% a few months ago to 2.3% for this year, and from 3.3% to 1.5% for next year.
Regarding foreign trade trends, the report notes that global trade growth has continued to be unexpectedly weak over the past year, with a decline in openness. Given the importance of trade for productivity and development, this is concerning.
In the first half of this year, global goods and services trade grew by just 0.1% year-on-year. Goods trade volume decreased by 1.5%, while services trade volume increased by 6.4%, driven by continued recovery in Asian travel.
However, trade weakness is not a new phenomenon. Since the end of the COVID-19 pandemic, the proportion of trade relative to GDP has been declining globally, especially in goods trade, affected by increasingly strict trade restrictions, protectionist policies, and restructuring of global value chains.
This reflects a combination of cyclical and structural factors. Most of the slowdown over the past decade appears to be structural, reflecting a slowdown in the integration of global value chains and an increase in restrictive trade policies worldwide, as well as increasingly inward-looking domestic policies.
Recently, cyclical differences in growth momentum among countries have clearly led to the current trade slowdown. In recent quarters, the slowdown in trade-intensive European countries and "dynamic Asian economies" has been greater than in less trade-intensive economies like the United States and Japan. This demand restructuring has reduced the global trade share in GDP.
"Dynamic Asian economies" refer to Hong Kong, China, Malaysia, Taiwan, China, the Philippines, Singapore, Thailand, and Vietnam.
Clare Lombardelli, OECD Chief Economist, said, "We must reinvigorate global trade."
In China, trade volume "increased significantly" in the first half of this year, following a "very weak" second half of last year. In contrast, trade volumes in Germany, France, Spain, and the Netherlands shrank, with overall OECD growth also slowing.
For the future direction, the report believes that recent indicators suggest global trade can only gradually recover from its current slowdown. Despite a "strong turnaround" in the Chinese economy, overall container port activity indicators show a slight rebound in total throughput.
Globally, manufacturing new export orders remain weak, but automobile production rebounded in the third quarter of this year, and there are signs that tech-related production in Asia is starting to improve. So far, the current round of the Israel-Palestine conflict has not disrupted the flow of goods or oil through the Strait of Hormuz or the Suez Canal, but it poses significant risks.
Additionally, the report notes that higher interest rates and stricter credit conditions are beginning to affect the cost and availability of trade finance. According to a survey by the Asian Development Bank, the cost of trade finance for businesses has risen sharply, becoming the second biggest barrier to business operations. Over a third of companies highlighted insufficient financing as a major supply chain issue, while 22% emphasized it as the most pressing barrier to growth.
The report offers a range of policy recommendations for governments, including: monetary policy should remain tight; fiscal policy needs to prepare for future spending pressures; markets should remain open and structural reforms implemented to restore growth; and multilateral cooperation should be pursued to reinvigorate global trade.
