The global economy is starting to improve, but the recovery will be weak, according to the latest OECD Economic Outlook, which forecasts a moderation in global growth from 3.3% in 2022 to 2.7% in 2023 (previous March estimate was 2 .6%), followed by a recovery to 2.9% in 2024. Italy, with growth revised upwards to +1.2% this year (it will slow to +1% in 2024), is outperforming the average of the Eurozone (+0.9%). But the OECD warns that delays in implementing the Pnrr “could reduce GDP growth”. In addition, structural reforms will be a key element in supporting growth and reducing public debt-to-GDP.
A fragile recovery
Global economic developments are starting to improve, but the recovery remains fragile. Global GDP growth to 2.7% in 2023 will reach 2.9% in 2024, well below the target of 3.3% reached last year. “The global economy is turning a corner, but it faces a long and winding road to achieving strong and sustainable growth,” writes Wing Chief Economist Clare Lombardelli. The outlook still remains “significantly uncertain” and inflation and the war in Ukraine are among the main concerns.
The risk of rising interest rates
Lower energy prices are helping to reduce headline inflation and ease strain on household balance sheets, business and consumer confidence are recovering and China’s full reopening ahead of schedule has boosted global activity, the OECD said. report. At the same time, core inflation appears to be persistent, reflecting higher profits in some sectors and still high cost pressures in resilient labor markets. The impact of higher interest rates around the world is increasingly being felt, particularly in the real estate sector and financial markets. There are signs of stress in some segments of the financial market as investors reassess risk and credit conditions tighten. In addition, “the full effects of monetary policy tightening”, which the OECD sees as yet to be completed, “will not be visible until the end of the year or in the first half of 2024”.
United States in slow motion
In particular, US GDP growth is forecast at 1.6% in 2023, before slowing to 1% in 2024 in response to tight monetary and financial conditions. In the euro area, declining global inflation will help boost real incomes and boost GDP growth from 0.9% in 2023 to 1.5% in 2024. China is expected to experience a strong increase in GDP growth in 2023 ( by 5.4%) and in 2024 (by 5.1%), thanks to the abolition of the government’s zero-Covid policy. But the most recent data from May on the trade balance, with the sharp drop in exports and imports, suggest that the situation remains fragile and uncertain.
Italy on the test of the Pnrr
As for Italy, excluding growth, the OECD estimates a decrease in the debt ratio to 140.7% in 2023, from 144.3% in 2022 and to 139.4% in 2024. The budget deficit-to-GDP ratio is is expected at 4.1% this year, compared to 8% last year, and 3.2% in 2024. While the unemployment rate will remain stable at 8.1% over the two-year period. To see a sustained fall in inflation, estimated at 6.4% for this year (in May it was 7.6% against a euro average of 6.9%), we will have to wait until 2024, when prices should drop to 3%.
“Italy’s somewhat restrictive fiscal policy” “appears generally appropriate and further consolidation will be necessary in the coming years to put the debt-to-GDP problem on a more sustainable path,” the OECD writes, noting, however, that household savings accumulated remain “high” and this could lead to “a faster recovery in domestic demand than currently expected”.
On the contrary, “delays in the implementation of the National Recovery and Resilience Plan (Pnrr) could reduce GDP growth”. Instead, “full implementation” of the ambitious public investment and structural reform plans envisaged by the Pnrr could lead to a “sustainable increase in Italy’s GDP”, with the benefit of putting further pressure on the debt reduction. That is why the Paris Organization proposes to « replace unfeasible projects.
The German case
In Europe, Italy’s “modest” growth is comparable to a Germany that will stall in 2023 and rise by 1.3% next year. However, German exports are recovering and investment will continue to increase, despite the rate hike by the European Central Bank (ECB). For the OECD, the federal government would be making a mistake if it responded to the stagnation with an expansionary fiscal policy. In fact, the increase in government spending must be avoided in order to curb inflation. Especially since, according to the OECD, the German state will invest more and provide tax incentives for “green” investments.
In France, however, GDP growth is expected at 0.8% this year and 1.3% in 2024, in Spain at 2.1% and 1.9% respectively. IN Portugal at 2.5% and 1.5%. In Greece at 2.2% and 1.9%.
The wife’s recommendation
The Outlook includes a special chapter dedicated to women’s economic empowerment, with policy recommendations including expanding flexible working arrangements, addressing tax and benefit barriers and improving access to childcare. The report emphasizes that removing structural barriers and discrimination to achieve gender equality should be a top priority to promote long-term economic well-being and prosperity.
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I am Lawrence Sickels and I work in the news industry. For the past few years, I have been writing for The News Dept, a web-based platform dedicated to providing readers with quality journalism. My main area of focus is covering economic news and business trends across the globe. With my detailed knowledge of current affairs and market analysis, I am able to offer insightful commentary on economic issues beyond the headlines.
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