OECD Raises Global Growth Outlook for 2024, Sees Continued Monetary Easing Ahead
3min read The Organization for Economic Co-operation and Development (OECD) has updated its global economic outlook, slightly revising its growth forecast for 2024 upward while maintaining its previous projections for 2025.
This forecast comes amid ongoing global economic uncertainty, with monetary policy adjustments expected to play a key role in shaping growth trajectories over the next few years.
The OECD now expects global growth in 2024 to reach 3.2%, an improvement from its previous forecast of 3.1%. This modest upward revision reflects a slightly more optimistic view on global economic activity, driven in part by resilience in key economies.
The forecast for 2025 remains unchanged at 3.2%, signaling expectations of steady growth as the global economy adjusts to post-pandemic realities and shifting monetary policies.
Regional Growth Forecasts: Mixed Outlook Across Major Economies
United States: The OECD maintains its 2024 growth forecast for the U.S. at 2.6%, indicating expectations of continued resilience despite concerns over higher interest rates and inflationary pressures. However, the 2025 forecast has been lowered slightly from 1.8% to 1.6%, suggesting that growth may slow as the effects of tighter monetary policy take hold. With the Federal Reserve expected to cut interest rates next year, the U.S. economy may benefit from a more supportive policy environment, though the lag effects of previous rate hikes could weigh on growth.
China: China's growth forecast remains unchanged, with the OECD projecting growth of 4.9% in 2024 and 4.5% in 2025. These projections reflect China’s ongoing efforts to stabilize its economy after a challenging few years marked by strict COVID-19 measures and weakening global demand. While these growth rates are solid, they represent a slowdown from China’s historical growth levels, as the country continues to transition from an investment-led growth model to one driven more by consumption and services.
Eurozone: The outlook for the Eurozone remains subdued, with the OECD projecting 0.7% growth in 2024 and a downward revision for 2025 from 1.5% to 1.3%. Persistent inflation, higher borrowing costs, and geopolitical uncertainty have weighed on the region’s growth prospects. The eurozone’s relatively slower recovery compared to other major economies may reflect structural challenges, including high energy prices and weaker industrial output.
Monetary Policy: Fed and ECB Expected to Ease Rates
The OECD’s projections for central banks indicate that monetary policy will play a key role in shaping the economic landscape over the coming years. The organization expects the Federal Reserve to reduce interest rates to 3.50% by the end of 2024.
This forecast aligns with market expectations that the Fed will begin cutting rates as inflation pressures ease and economic growth slows. The U.S. economy has been resilient in the face of aggressive rate hikes, but the OECD's outlook suggests that the Fed may shift toward a more accommodative stance to sustain growth and ensure inflation remains under control.
For the European Central Bank (ECB), the OECD projects a more gradual rate-cutting cycle, with the ECB’s deposit rate expected to fall to 2.25% by the end of 2025. This reflects the eurozone’s slower recovery and ongoing inflation challenges.
The ECB has raised rates significantly over the past year to combat high inflation, but with growth prospects remaining tepid, the OECD expects the central bank to eventually adopt a more supportive stance to stimulate economic activity.
Implications for Investors
U.S. Markets: The expectation of Fed rate cuts by the end of 2024 provides a positive signal for equity markets and interest rate-sensitive sectors, such as housing and technology. However, slower U.S. growth in 2025 suggests that investors should remain cautious about potential headwinds as the economy adjusts to lower rates and lingering inflationary pressures.
Chinese Growth: Investors focused on China should anticipate steady, albeit slower, growth. With the Chinese government focusing on domestic consumption and structural reforms, sectors tied to consumer spending and services may outperform traditional industries like construction and manufacturing.
Eurozone Challenges: The eurozone’s sluggish growth prospects present both risks and opportunities. While rate cuts may provide some relief, structural challenges in the region could lead to continued volatility. Investors might look for defensive plays in sectors like healthcare and utilities, or focus on multinational companies that are less reliant on the eurozone for growth.
Global Fixed Income: The forecasted rate cuts by the Fed and ECB suggest a more favorable environment for bonds in the medium term. As interest rates fall, bond prices may rise, benefiting fixed-income investors. However, with inflation still a concern, investors may want to remain selective, focusing on higher-quality credit or inflation-linked securities.
Conclusion
The OECD’s revised global growth forecast reflects a slightly more optimistic view of the global economy in 2024, but the outlook remains cautious for 2025. While the U.S. and China are expected to maintain steady growth, the eurozone faces more significant challenges.
The projected rate cuts from the Fed and ECB highlight the critical role monetary policy will play in sustaining economic activity in the coming years.
For investors, the shifting landscape presents opportunities and risks across asset classes. With central banks expected to ease rates, there may be room for growth in equity and bond markets, but lingering inflation and structural challenges in key regions will require careful portfolio positioning.