A long unwinding road

OECD Economic Outlook, June 2023
GDP growthInflationWages and incomePolicy actionsCountry notes
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The global economy is showing signs of improvement but the upturn remains weak, amid significant downside risks. Lower energy prices are helping to bring down headline inflation and ease strains on household budgets, and the earlier-than-expected reopening of China has provided a boost to global activity. However, core inflation is proving persistent and the impact of higher interest rates is increasingly being felt across the economy.

Discover the three key take-aways:

> Global growth has stabilised, but the improvement is fragile
> Underlying inflation pressures remain high
> Inflation hit households hard

GDP growth

Global growth has stabilised, but the improvement is fragile

 

Global GDP growth in 2023 is projected to be 2.7%, the lowest annual rate since the global financial crisis, with the exception of the 2020 pandemic period. A modest improvement to 2.9% is foreseen for 2024. Annual OECD GDP growth is projected to be below trend in both 2023 and 2024, although it will gradually pick up through 2024 as inflation moderates and real incomes strengthen.

Inflation

Underlying inflation pressures remain high

 

Headline inflation has fallen in most economies in recent months due to the downturn in energy prices, even though food and services prices have continued to rise rapidly. Core inflation remains stubbornly high.

Wages and income

Inflation hit households hard

 

A combination of high inflation and modest wage increases led to falling real wages in 2022. Many governments rolled out extensive support to cushion the effects of high energy and food prices on households. Over the course of 2023, real wages are projected to stop declining in most OECD countries.

What should governments do?

1. Maintain restrictive monetary policy to combat inflation

Monetary policy needs to remain restrictive until there are clear signs that underlying inflationary pressures are durably reduced. This may require additional interest rate increases in economies in which high core inflation is proving persistent.

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2. Phase out and target fiscal support

With global food and energy prices having declined and minimum wages and welfare benefits having increased to take account of past inflation, fiscal support to mitigate the cost of living crisis should increasingly become targeted toward vulnerable households inadequately covered by the general social protection system.

> The OECD Energy Support Measures Tracker

3. Prioritise pro-growth spending and supply-boosting structural reforms

Public debt levels and budget deficits are high. Many also face rising future spending pressures from ageing populations, the green transition and higher interest payments on public debt. These pressing future challenges and the longer-term decline in trend growth rates point to a need for ambitious supply-boosting structural reforms and prioritising pro-growth public spending.

> Read more

Country notes

OECD Economic Outlook, Volume 2023 Issue 1

iLibrary doi: 10.1787/ce188438-en

Global economic developments have begun to improve, helped by lower energy prices, improving business and consumer sentiment, and the reopening of China. However, the OECD Economic Outlook highlights that the upturn is fragile and the recovery is set to remain weak by past standards, with the effects of tighter monetary policy increasingly being felt. The Outlook underlines a range of risks, including the possibility that inflation could prove more persistent than projected and that the impact of higher interest rates on financial markets and economic activity could be stronger than expected. Well-calibrated policy measures are required to unwind the impact of the recent sequence of negative shocks to the global economy, restore economic stability, and strengthen prospects for strong, inclusive and sustainable improvements in living standards.

This issue includes an assessment of the global economic situation, a chapter on promoting gender equality to strengthen economic growth and resilience and a chapter summarising developments and providing projections for each individual country. Coverage is provided for all OECD members as well as for selected partner economies.

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