Signs have emerged of a slight improvement in the global economy, thanks to falling energy and food prices in early 2023, the OECD said on Friday as it raised its global economic growth projections for this year and next.
The OECD now expects global economic growth at 2.6% this year, up from 2.2% expected in November, and at 2.9% for 2024, up by 0.2 percentage points compared to the previous projection in November.
Despite the increase in growth projections, the OECD cautioned that the recovery is still fragile and risks remain skewed to the downside.
“The improvement in the outlook is still fragile. Risks have become somewhat better balanced, but remain tilted to the downside. Uncertainty about the course of the war in Ukraine and its broader consequences is a key concern,” the OECD said.
In addition, the impact of the interest rate hikes is difficult to assess and “could continue to expose financial vulnerabilities from high debt and stretched asset valuations, and also in specific financial market segments.”
“Pressures in global energy markets could also reappear, leading to renewed price spikes and higher inflation,” the OECD said.
However, the organization noted that the decline in energy and food prices was a key factor in improving economic activity and sentiment in early 2023.
“While levels are still relatively high compared to pre-war, this is boosting purchasing power for most firms and households and is helping to lower headline inflation. The earlier-than-expected re-opening in China is also expected to have a positive impact on global activity, reducing supply chain pressures and giving a boost to international tourism,” the OECD added.
China’s reopening is expected to drive global oil demand growth this year, the International Energy Agency (IEA) said earlier this week.
The oil market is set to swing from a supply overhang in the first half of 2023 to a deficit in the latter part of the year as the economic rebound in China will push global oil demand to a record high, the IEA said in its Oil Market Report.