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OECD hikes 2023 global growth outlook, but warns recovery fragile

Group cites drop in energy prices, hints at 'mild' interest rate easing in 2024

U.S. Federal Reserve Board Chairman Jerome Powell, seen discussing an interest rate hike on Feb. 1. The Organization for Economic Cooperation and Development sees an improved economic outlook.   © Reuters

PARIS (Reuters) -- The global economic outlook has improved from a few months ago as the inflation shock eases, but rising interest rates will keep risks high, the OECD said on Friday, hiking its growth forecasts for major economies.

After growth last year of 3.2%, the world economy is on course to expand 2.6% as central bank tightening takes full effect, the Organization for Economic Cooperation and Development said in its interim economic outlook.

The Paris-based organization raised its forecast for global growth from 2.2% in its last Economic Outlook in November, citing a decline in energy and food prices and China's easing of its anti-COVID restrictions.

Looking to next year, global growth is expected to accelerate to 2.9% -- compared with a November forecast of 2.7% -- as the hit to household incomes from high energy prices fades.

The OECD forecasts that inflation in the Group of 20 major economies will fall from 8.1% last year to 5.9% this year and further decline to 4.5% in 2024 -- still well above targets despite interest rate hikes by many central banks.

It said the full impact of higher interest rates was hard to gauge, warning that increased stress for borrowers could translate into losses for some banks, citing the recent collapse of Silicon Valley Bank in the United States as an example.

Setting aside turmoil in financial markets following SVB's failure and continued worries about Swiss lender Credit Suisse, the European Central Bank hiked interest rates by a further half percentage point on Thursday to fight inflation.

The OECD projected that central bank policy rates would peak at 5.25%-5.5% in the United States and 4.25% in the euro area and Britain with a decline in inflation possibly allowing for a "mild" easing next year.

The OECD forecast that U.S. economic growth would slow from 1.5% this year to 0.9% next year as higher interest rates cooled demand. With the U.S. labor market holding up better than expected, the forecast for this year was up from 0.5% in November and down from 1.0% for 2024.

Boosted by the easing of anti-COVID measures, the Chinese economy was seen growing 5.3% this year and 4.9% in 2024, up from November forecasts for 4.6% and 4.1%, respectively.

The outlook for the euro area had also improved thanks to a drop in energy prices, with the 20-nation bloc expected to see growth this year of 0.8% followed by 1.5% in 2024. The OECD had previously forecast 0.5% and 1.4% growth, respectively.

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