The world economy faces a long and fragile recovery from the COVID-19 pandemic and fallout from the Russian war in Ukraine, hobbled by chronic inflation and rising interest rates, the OECD said.
In its latest Economic Outlook released Wednesday, the Paris-based group projected global growth of just 2.7% this year, the lowest annual rate since the 2008 financial crisis. Only a modest improvement is expected in 2024, with an output of 2.9%.
Both of those figures are a sharp drop from the 3.4% seven-year average recorded before the pandemic began.
"The global economy is showing signs of improvement, but the upturn remains weak, amid significant downside risks," the OECD said in the report, titled "A Long Unwinding Road."
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Although lower energy prices are helping to bring down headline inflation globally, and China's earlier-than-expected reopening from the pandemic provided a boost to the global economy, headwinds remain in the form of stubborn inflation and tighter monetary policy.
"Core inflation is proving persistent and the impact of higher interest rates is increasingly being felt across the economy," the OECD said.
The Federal Reserve and other global central banks are waging an aggressive campaign to crush high inflation, raising interest rates at the fastest pace in decades in a bid to cool the economy and tame runaway prices.
The threat of higher interest rates, coupled with the possibility of more turmoil in the banking sector following a spate of bank collapses this spring, could slow economic growth even more this year.
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Despite the risks that come from such a rapid increase in interest rates, the OECD said that "monetary policy should remain restrictive until there are clear signs that underlying inflationary pressures are durably reduced." It also called for a reduction in fiscal support.
The gloomy OECD outlook comes just one day after the World Bank issued similarly pessimistic projections.
In its updated forecasts, the World Bank said the global economy is expected to expand just 2.1% this year after growing 3.1% in 2022.
Advanced economies, including the U.S., are projected to also cool to a growth rate of just 0.7% this year – a marked drop from the 2.6% rate recorded in 2022 and one of the weakest growth rates in the last five decades, according to Indermit Gill, the World Bank Group's chief economist and senior vice president.
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"The world economy remains hobbled," the World Bank said in the report. "Besieged by high inflation, tight global financial markets, and record debt levels, many countries are simply growing poorer."
