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June 7 (UPI) -- The Organization for Economic Cooperation and Development on Wednesday forecast that while the global economy has bottomed out, its recovery will likely be weak. The group's latest Economic Outlook forecast that growth will continue to slow by 0.6% this year, down from 3.3% in 2022, before picking up slightly to 2.9% next year.
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"Falling energy prices and headline inflation, easing supply bottlenecks and the reopening of China's economy, coupled with strong employment and relatively resilient household finances, all contribute to a projected recovery. Nevertheless, the recovery will be weak by past standards," the report said.
Tight monetary and financial conditions will see U.S. growth continue to slow to 1.6% in 2023 and 1% in 2024 while higher real incomes from lower headline inflation in the eurozone will help GDP growth rise from 0.9% in 2023 to 1.5% in 2024.
"Policymakers must get inflation durably down to target and unwind broad fiscal support by better targeting fiscal measures. While continuing to respond to the immediate economic challenges, it remains important to prioritize structural reforms to boost productivity, including by promoting competition, reviving investment, increasing female workforce participation and alleviating supply constraints, while securing the green and digital transformations of our economies," said OECD Secretary-General Mathias Cormann.
The report said that with several of the factors weighing negatively on growth now unwinding, global economy was at a turning point but faced "a long road ahead" to achieving strong and sustainable growth"
The OECD called on the policymakers of its 38 member countries to act decisively on macroeconomic and structural policy to deliver stronger and more sustainable growth in spite of "stubbornly" high core inflation, high debt levels and lackluster output.
Its key recommendations include combating inflation head-on by not reducing interest rates prematurely; redirecting universal cost-of-living support programs to those most vulnerable; and prioritizing pro-growth fiscal spending and supply-side reforms.
"Fiscal policy should prioritize productivity-enhancing public investments, including those driving the green transition and boosting labor supply and skills," said OECD Chief Economist Clare Lombardelli.
"Renewed reform efforts to reduce constraints in labor and product markets and to reignite private investment and productivity growth would improve sustainable living standards and strengthen the recovery from the current low growth outlook."
While acknowledging the tightrope they had to walk between restrictive monetary policies to rein in inflation and allowing room for growth, the OECD said policymakers should beware of financial market vulnerabilities exposed by rate rises as highlighted by banking sector turmoil seen around the world in recent months.
Policymakers must keep a "watchful eye, given the uncertainties around the exact impact of the rapid and globally synchronized monetary policy tightening" following on from 15 years of low interest rates.
The report said clear communication was crucial to avoid confusion about the potential conflict between pursuing price stability and financial stability mandates and central banks should deploy financial policy instruments to enhance liquidity and minimize contagion risks if further financial market stress occurs.
The OECD forecast is in stark contrast with the World Bank's latest forecast Tuesday that predicted global growth would slow sharply to 2.1% this year and 2.9% for emerging markets and developing economies, excluding China.
