The global economy has stabilized after several years of inflation-fueled volatility and is on pace to grow at a 3.2% rate over the next two years, according to a report issued Wednesday by the Organization for Economic Cooperation and Development (OECD).
Subtitled "Turning the corner," the report cites a downward trend in inflation across most major economies, as well as increasing trade, rising real income and central banks gradually lowering interest rates as key reasons for optimism about the future.
However, the report urges governments to be vigilant about potential pitfalls and to continue implementing reforms that spur economic growth.
"Governments also need to turn the corner on structural reforms," OECD chief economist Alvaro Santos Pereira said in a press release. "The pace of regulatory reforms in recent years has been stalling, and in important parts of the economy reform progress came to a standstill. Amid sluggish productivity growth and tight fiscal space, product-market reforms that promote open markets with healthy competitive dynamics remain a key lever to reinvigorate growth."
Inflation down
Emerging from COVID-19 lockdowns over the past few years, most of the world experienced sharp rises in inflation, with prices for everyday goods and services rising, in some cases, by 10% or more per year.
Now, though, the OECD sees signs of reversion to normality.
As of the end of August, inflation was within one percentage point of central banks' target rates in four out of five OECD countries. Central banks typically aim for low but positive price growth in the economies they manage. The U.S. Federal Reserve, for example, tries to keep the rate of inflation at approximately 2% per year.
In 2025, the OECD said that it expects "headline" inflation for the G20 group of large, industrialized economies to be approximately 3.3%.
Growth positive
Across the G20, the OECD expects every country except for Argentina and Japan to post positive economic growth in fiscal 2024. However, that growth has not been distributed evenly.
India's 2024 growth rate of 6.7% tops the charts, followed by Indonesia at 5.1% and China at 4.9%. Russia, despite being under severe sanctions due to its war of aggression in Ukraine, is expected to come in fourth for the year at 3.7%.
At the other end of the spectrum, Germany will barely remain in positive territory, with 0.1% growth for the year. Other nations are posting anemic numbers as well, with the United Kingdom, France, Canada, Australia, South Africa, Saudi Arabia and Italy all at or below 1.1% growth.
In 2025, the OECD is predicting a sharp reversal of fortune for several countries, none more pronounced than Argentina. The country has been struggling to adapt to controversial economic reforms instituted this year by its new president, Javier Milei. However, after this year's projected 4% decline in growth, the country is expected to rebound sharply, posting 3.9% positive growth in 2025.
Other countries on the rebound include Japan, which will go from a decline of 0.1% this year to 1.4% growth in 2025, and Saudi Arabia, which will accelerate its plodding 1% growth rate this year to 3.7% in 2025.
Job market loosening
In the aftermath of the pandemic, companies in developed countries frequently found it difficult to find the workers they needed to return to full capacity. That resulted in rising wages, which may have contributed to widespread inflation.
However, after peaking in most countries at the end of 2022 and the beginning of 2023, the rate of unfilled job openings has been declining steadily in many G20 countries. While this means that unemployment rates have risen somewhat, it also reduces inflationary pressures.
The decline has been most notable in the U.K. and the U.S., both of which experienced declines in the number of unfilled jobs of just over 30%.
Regulatory reform
The report urges governments around the world to implement "pro-competition" regulatory reforms to "improve the foundations for future growth."
Among the measures suggested is a gradual reduction of interest rates, which many G20 central banks raised dramatically to stifle inflation, as well as fiscal responsibility measures to rein in unsustainable debt.
World Economic Forum
Also on Wednesday, the World Economic Forum released its Chief Economists Outlook, which surveys the chief economists of a broad segment of public and private sector organizations. Like the OECD, they reported optimism about the immediate future, as well as warnings about potential trouble spots.
"There are reasons for cautious optimism, notably including a continued gradual easing of inflation rates and a shift to looser monetary policy," the report said. "However, the prolonged sluggish pace of global growth, compounded by heightened political volatility, leaves many countries vulnerable to economic shocks."
The report also warned about the sustainability of public debt in much of the global economy, saying, "Current debt dynamics are undermining government efforts to boost growth and leave countries poorly prepared for the next economic downturn."
