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)
TT
20

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.



Oil Prices Climb, but Recession Fears and Tariffs Limit Gains

FILE - Pump jacks extract oil from beneath the ground in North Dakota, May 19, 2021. (AP Photo/Matthew Brown, File)
FILE - Pump jacks extract oil from beneath the ground in North Dakota, May 19, 2021. (AP Photo/Matthew Brown, File)
TT
20

Oil Prices Climb, but Recession Fears and Tariffs Limit Gains

FILE - Pump jacks extract oil from beneath the ground in North Dakota, May 19, 2021. (AP Photo/Matthew Brown, File)
FILE - Pump jacks extract oil from beneath the ground in North Dakota, May 19, 2021. (AP Photo/Matthew Brown, File)

Oil prices rose 1% on Tuesday, helped by weakness in the US dollar, although gains were capped as concerns mounted over a US slowdown and the impact of trade tariffs on global economic growth.

Brent futures rose 73 cents, or 1.05%, to stand at$70.01 a barrel at 1116 GMT after falling in early trade. US West Texas Intermediate crude futures climbed 66 cents, or 1%, to $66.69 a barrel after previous declines as well.

Both benchmarks closed 1.5% lower in the previous session.

The dollar index hit a four-month low, making oil less expensive for overseas buyers.

Investors are closely monitoring OPEC+ plans after the producer group announced plans to increase output in April, Reuters reported.

A scaling back of US tariffs would ease fears of inflation and economic contraction, said PVM analyst Tamas Varga, but the recent oil price plunge meant it was "hard to see OPEC+ going ahead with its plan and releasing oil back to the market from April."

On Friday, Russia's Deputy Prime Minister Alexander Novak told reporters that the OPEC+ producer group would go ahead with its April increase but may then consider other steps, including reducing production.

Brent is finding strong technical support at around $70 a barrel and may look to stage a bounce, said Suvro Sarkar, energy sector team lead at DBS Bank, adding that the OPEC+ supply response would be flexible, depending on market conditions.

"If oil prices fall below the $70 per barrel mark for an extended period, output hikes may be paused in our opinion. OPEC+ will also keep a careful eye on Trump's Iran and Venezuela policies," he said.

US President Donald Trump's protectionist policies have shaken global markets, imposing and delaying tariffs on major oil suppliers Canada and Mexico, while also raising duties on China, prompting retaliatory measures.

Over the weekend, Trump said a "period of transition" was likely and declined to rule out a US recession.

Stocks, which crude prices often follow, slumped on Monday, with all three major US indexes suffering sharp declines. The S&P 500 had its biggest one-day drop since December 18 and the Nasdaq slid 4.0%, its biggest single-day percentage drop since September 2022.

Investors await US inflation data due on Wednesday for clues on the path of interest rates.

In the US, crude oil stockpiles were expected to have risen last week, while distillate and gasoline inventories likely fell, a preliminary Reuters poll showed on Monday.

The poll was conducted ahead of reports from the American Petroleum Institute at 4:30 p.m. EDT Tuesday and the Energy Information Administration at 10:30 a.m. EDT Wednesday.