World Economy Will Slow Next Year Because of Inflation, High Rates and War, OECD Says 

Tourists browse inside a souvenir shop at the Nanluoguxiang tourism area in Beijing, China, 25 November 2023. (EPA)
Tourists browse inside a souvenir shop at the Nanluoguxiang tourism area in Beijing, China, 25 November 2023. (EPA)
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World Economy Will Slow Next Year Because of Inflation, High Rates and War, OECD Says 

Tourists browse inside a souvenir shop at the Nanluoguxiang tourism area in Beijing, China, 25 November 2023. (EPA)
Tourists browse inside a souvenir shop at the Nanluoguxiang tourism area in Beijing, China, 25 November 2023. (EPA)

The global economy, which has proved surprisingly resilient this year, is expected to falter next year under the strain of wars, still-elevated inflation and continued high interest rates.

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

A key factor is that the OECD expects the world's two biggest economies, the United States and China, to decelerate next year. The US economy is forecast to expand just 1.5% in 2024, from 2.4% in 2023, as the Federal Reserve’s interest rate increases — 11 of them since March 2022 — continue to restrain growth.

The Fed's higher rates have made borrowing far more expensive for consumers and businesses and, in the process, have helped slow inflation from its four-decade peak in 2022. The OECD foresees US inflation dropping from 3.9% this year to 2.8% in 2024 and 2.2% in 2025, just above the Fed’s 2% target level.

The Chinese economy, beset by a destructive real estate crisis, rising unemployment and slowing exports, is expected to expand 4.7% in 2024, down from 5.2% this year. China’s “consumption growth will likely remain subdued due to increased precautionary savings, gloomier prospects for employment creation and heightened uncertainty,” the OECD said.

Also likely to contribute to a global slowdown are the 20 countries that share the euro currency. They have been hurt by heightened interest rates and by the jump in energy prices that followed Russia's invasion of Ukraine. The OECD expects the collective growth of the eurozone to amount to 0.9% next year — weak but still an improvement over a predicted 0.6% growth in 2023.

The world economy has endured one shock after another since early 2020 — the eruption of COVID-19, a resurgence of inflation as the rebound from the pandemic showed unexpected strength, Moscow's war against Ukraine and painfully high borrowing rates as central banks acted aggressively to combat the acceleration of consumer prices.

Yet through it all, economic expansion has proved unexpectedly sturdy. A year ago, the OECD had predicted global growth of 2.2% for 2023. That forecast proved 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 moderating as the impact of tighter financial conditions, weak trade growth and lower business and consumer confidence is increasingly felt.”

Moreover, the OECD warned, the world economy is confronting new risks resulting from heightened geopolitical tensions amid the Israel-Hamas war — “particularly if the conflict were to broaden.”

“This could result in significant disruptions to energy markets and major trade routes,” it said.



Urgent Financial Tasks Await Lebanon’s Emerging Government

Lebanese President Joseph Aoun stands between Speaker of Parliament Nabih Berri and caretaker Prime Minister Najib Mikati (dpa)
Lebanese President Joseph Aoun stands between Speaker of Parliament Nabih Berri and caretaker Prime Minister Najib Mikati (dpa)
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Urgent Financial Tasks Await Lebanon’s Emerging Government

Lebanese President Joseph Aoun stands between Speaker of Parliament Nabih Berri and caretaker Prime Minister Najib Mikati (dpa)
Lebanese President Joseph Aoun stands between Speaker of Parliament Nabih Berri and caretaker Prime Minister Najib Mikati (dpa)

A broad internal consensus, encompassing both political and economic dimensions, is taking shape to adopt the principles outlined in the presidential inauguration address as the foundation of the new government’s program and ministerial statement. This approach aims to sustain Lebanon’s immediate and strong positive momentum, which is reinforced by widespread support on both Arab and international levels.

Economic bodies and professional unions representing business sectors have openly expressed their relief and full support for the strategic directions set by President Joseph Aoun following his election. However, they have made it clear that maintaining this positive momentum depends on the formation of a reform-oriented rescue government, composed of competent, experienced, and honest ministers. This government must also collaborate constructively with the president.

According to a senior financial official, the rescue mission will be challenging due to years of governmental inaction and constitutional voids, which led to a deterioration in public sector operations and the accumulation of economic, financial, and monetary crises over the past five years. These challenges were further compounded by a devastating war, which inflicted severe human and financial losses estimated at approximately $10 billion, thereby worsening the country’s financial gap, now estimated at $72 billion.

Economic and banking circles are looking to the new government to swiftly capitalize on extensive international support by restoring trust and reestablishing financial channels between Lebanon and its regional and international partners. Key to this effort are explicit and transparent commitments to combating illegal economic activities, corruption, smuggling, money laundering, and drug trafficking. In parallel, the government must prioritize strengthening judicial independence and implementing strict controls over land, sea, and air borders.

The national consensus evident in the presidential election, according to Mohammad Choucair, head of Lebanon’s economic associations, paves the way for constructive collaboration among political factions. This collaboration is crucial for addressing challenges, rebuilding the state, and benefiting from renewed international and Arab—particularly Gulf and Saudi—interest in Lebanon. Choucair emphasized the importance of normalizing relations with Gulf nations, supporting Lebanon’s recovery, and providing resources for reconstruction efforts.

One of the urgent tasks for the new government, according to the financial official, is revisiting the draft 2024 state budget, which was previously submitted to parliament. Adjustments are necessary to address fundamental discrepancies in expenditure and revenue projections, taking into account significant changes brought about by the Israeli war.

Ibrahim Kanaan, chairman of the Parliamentary Finance Committee, described the budget as “unrealistic, if not entirely fictitious,” particularly in its revenue estimates. He pointed out that revenue increases were based on income and capital taxes, internal duties, and trade-related fees, all of which have been severely impacted by the war.

Reassuring depositors, both domestic and expatriate, who have suffered massive losses over recent years, is another pressing issue. These losses were exacerbated by the inability of successive governments to implement a comprehensive rescue plan addressing the $72 billion financial gap fairly. The situation was worsened by mismanagement in the electricity sector and the squandering of over $20 billion in central bank reserves following the onset of the financial crisis.

In response to Aoun’s commitment to a fair resolution for depositors, the Association of Banks in Lebanon welcomed his emphasis on safeguarding deposits. It also expressed its readiness to collaborate with the central bank and the government to protect depositors’ rights, citing a recent State Council ruling that prohibits any financial recovery plans from including measures that would erode depositors’ funds.

In its final session, the caretaker government addressed long-standing creditor issues by unanimously agreeing to suspend Lebanon’s right to invoke statutes of limitations on claims by foreign bondholders under New York law. This suspension, effective until March 9, 2028, aims to facilitate future negotiations.

With this decision, the caretaker government tacitly acknowledged Lebanon’s pending debt obligations, including over $10 billion in suspended interest payments on Eurobonds and approximately $30 billion in principal debt. The resolution now awaits direct negotiations under the new administration, which faces the challenge of resolving a nearly five-year-old crisis triggered by the previous government’s uncoordinated decision to halt payments on all Eurobond obligations through 2037.

Caretaker Finance Minister Youssef Khalil emphasized that despite the difficult circumstances, “Lebanon remains committed to reaching a fair and consensual resolution regarding the restructuring of Eurobond debt.”