World economic growth is slowing due to high interest rates and punishing inflation effects, the Organisation for Economic Cooperation and Development (OECD) said on Tuesday, calling for “essential” further monetary policy tightening and “more targeted” government support.
Global GDP is forecast to grow by 3.1 per cent this year, and by just 2.2 per cent in 2023, according to the latest forecast by the 38-country intergovernmental organisation. “It is true we are not predicting a global recession,” OECD secretary-general Mathias Cormann said at a news conference. “But this is a very, very challenging outlook, and I don’t think anyone will take great comfort from the projection of 2.2 per cent global growth.”
In the meantime, minutes of the most recent monetary policy committee meeting of the US Federal Reserve (Fed) published on Wednesday show that officials should soon moderate the pace of interest rate increases, thus mitigating risks of overtightening.
They indicated that they were inclined to shift the gear down to a 50 basis-point hike in December from the series of 0.75 basis-point hikes of the past three meetings. This reflected statements many committee officials made in recent weeks.
Since the Fed’s last meeting on November 1-2, investors have increased their optimism that price pressures have started to subside, leading some analysts to believe that smaller interest rate hikes could be enough to continue curtailing inflation.
Finally, the eurozone composite Purchasing Managers’ Index (PMI) came in at 47.8 in November, slightly better than the October figure of 47.3, though nonetheless confirming that the currency bloc’s economy is still in contraction mode. The reading was expected to come in at 47.0.
However, it remained below the 50.0 threshold that separates expansion from contraction for the fifth month in a row.
The good news is that inflation pressures are fading as supply constraints ease along with the effects of a possible recession.
The November PMI data also brought some tentative good news, Chris Williamson, chief business economist at S&P Global Market Intelligence, said. The economist pointed out that the overall rate of decline has eased compared to October thanks to some easing in supply constraints and the warm weather, easing fears regarding energy shortages.
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