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Growth continues at a modest pace through 2025, inflation declining to central bank targets

PARIS, France – Global growth is holding up, while the pace of growth remains uneven across countries and regions, and inflation is still above targets, according to the OECD’s latest Interim Economic Outlook.

The Outlook projects global GDP growth of 2.9 percent in 2024 and a slight improvement to 3.0 percent in 2025, broadly in line with the previous OECD projections from November 2023. Asia is expected to continue to account for the bulk of global growth in 2024-25, as it did in 2023.

Inflation is expected to continue to ease gradually, as cost pressures moderate. Headline inflation in G20 countries is expected to decline from 6.6% in 2024 to 3.8 percent in 2025. Core inflation in the G20 advanced economies is projected to fall back to 2.5 percent in 2024 and 2.1% in 2025.

Growth in the United States is projected at 2.1 percent in 2024 and 1.7 percent in 2025, helped by consumers continuing to spend savings built up during the COVID-19 pandemic and easier financial conditions. In the euro area, GDP growth is expected at 0.6 percent in 2024 and 1.3 percent in 2025, with activity remaining subdued in the near term, amid tight credit conditions, before picking up as real incomes strengthen. Japan is projected to grow by 1.0 percent in both 2024 and 2025, mainly driven by private consumption and business investment. China is expected to grow at a 4.7 percent rate in 2024 and 4.2 percent in 2025 – a lower performance than in any of the 25 years before COVID-19, reflecting weak consumer demand and structural strains in property markets.

“The global economy has shown real resilience amid the high inflation of the past two years and the necessary monetary policy tightening. Growth has held up, and we expect inflation to be back to central bank targets by the end of 2025 in most G20 economies,” OECD secretary-general Mathias Cormann, said. “Monetary policy needs to remain prudent, though central banks could start to lower interest rates this year, provided that inflation continues to ease. Fiscal policy should rebuild fiscal space, through stronger efforts to contain spending growth. In parallel, we need to work together to reinvigorate trade, improve supply chain resilience, and tackle shared challenges, in particular climate change.”

The Outlook highlights a range of challenges. Geopolitical tensions remain a key source of uncertainty and have risen further as a result of the evolving conflict in the Middle East. Threats to shipping in the Red Sea have increased shipping costs and lengthened supplier delivery times. In case of an escalation, these factors could result in renewed price pressures in goods sectors and put the anticipated cyclical pick-up at risk. OECD estimates suggest that a doubling in shipping costs, if persistent, would add 0.4 percentage points to consumer price inflation in the OECD after about a year.

Monetary policy should remain prudent to ensure that inflationary pressures are durably lowered. Policy interest rates can be reduced in most major economies this year provided disinflation continues, but the pace of rate reductions will be data-dependent and vary across economies. The Outlook also notes the need for governments to act in the face of mounting fiscal pressures, adapting fiscal policy to meet longer-term challenges to growth, including high public debt, the need to improve educational outcomes for future generations and climate change. Reinvigorating global trade is also essential to strengthen the prospects for growth and economic development around the world.

“A longer-term approach is needed to strengthen the foundations for a more sustainable and prosperous economy,” OECD chief economist Clare Lombardelli, said. “Policymakers need to take action today to ensure sound public finances whilst maintaining and promoting measures to improve productivity and equip economies for the future.”

For the full report and more information, visit the Interim Economic Outlook online.

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