Economy
OECD sees limited growth pick-up as rate hikes weigh
Global economic growth will pick up only moderately over the next year as the full effects of central bank rate hikes are felt, softening the boost from lower inflation, the OECD said on Wednesday, nudging up its 2023 economic outlook.
The world economy is set to grow 2.7% this year, the Organisation for Economic Cooperation and Development (OECD) said, up from its previous forecast of 2.6% in March.
Though boosted by the lifting of China’s zero-COVID policy, that would be the lowest annual rate since the 2008-2009 global financial crisis with the exception of the pandemic-hit year of 2020, the Paris-based organization said.
Growth would then accelerate only slightly next year to 2.9% – unchanged from March’s forecast – as the impact of rate hikes by major central banks over the last year increasingly drags on private investment, starting with housing markets.
On Tuesday, the World Bank also cited the growing impact of rate hikes as it raised its forecast for world growth this year to 2.1% but for 2024 cut it back to 2.4% from a previous 2.7% forecast. A sharp fall in May for Chinese exports released on Wednesday also pointed to weakening global demand.
The OECD forecast that inflation in the Group of 20 major economies would fall from 7.8% last year to 6.1% this year and 4.7% in 2024 – still well above many central banks’ targets despite the interest rate hikes.
The U.S. Federal Reserve’s main interest rate was seen peaking soon at 5.25-5.5%, with “modest” rate cuts in the second half of 2024.
In the euro area, the OECD expects the European Central bank to keep raising rates in the face of still high core inflation, with a peak seen in the third quarter. It forecast the ECB would then leave its main rate at 4.25% until the end of 2024.
The Bank of Japan was expected to keep monetary policy accommodative, with no increase until the end of 2024, while UK rates were seen peaking some time from the second quarter of 2023.
The OECD forecast the U.S. economy would grow 1.6% this year before slowing to 1% in 2024, with the lagged effect of rate hikes hitting the world’s biggest economy particularly hard. It had previously foreseen U.S. growth of 1.5% this year and 0.9% in 2024.
Boosted by the end of COVID restrictions, the Chinese economy was expected to grow 5.4% in 2023 before moderating to 5.1% in 2024. China’s growth was previously forecast at 5.3% and 4.9% respectively.
As Europe’s winter energy price shock fades, euro area growth was seen accelerating from 0.9% this year to 1.5% in 2024 as lower inflation weighed less on incomes. In March, the OECD saw growth of 0.8% in 2023 and 1.4% in 2024.
Similarly, UK growth was seen rising from 0.3% in 2023 to 1% in 2024 as real income growth starts to improve. The UK’s outlook was raised from March forecasts for -0.2% in 2023 and 0.9% in 2024.
© Reuters. Russian Central Bank Governor Elvira Nabiullina attends a news conference in Moscow, Russia June 14, 2019. REUTERS/Shamil Zhumatov/File Photo
MOSCOW (Reuters) – Russia’s central bank will need two to three months to make sure that inflation is steadily declining before taking any decision on interest rate cuts, the bank’s governor Elvira Nabiullina told RBC media on Sunday.
The central bank raised its key interest rate by 100 basis points to 16% earlier in December, hiking for the fifth consecutive meeting in response to stubborn inflation, and suggested that its tightening cycle was nearly over.
Nabiullina said it was not yet clear when exactly the regulator would start cutting rates, however.
“We really need to make sure that inflation is steadily decreasing, that these are not one-off factors that can affect the rate of price growth in a particular month,” she said.
Nabiullina said the bank was taking into account a wide range of indicators but primarily those that “characterize the stability of inflation”.
“This will take two or three months or more – it depends on how much the wide range of indicators that characterize sustainable inflation declines,” she said.
The bank will next convene to set its benchmark rate on Feb. 16.
The governor also said the bank should have started monetary policy tightening earlier than in July, when it embarked on the rate-hiking cycle.
© Reuters. FILE PHOTO: Workers walk past an under-construction area with completed office towers in the background, in Shenzhen’s Qianhai new district, Guangdong province, China August 25, 2023. REUTERS/David Kirton/File Photo
SHANGHAI (Reuters) – China’s top planning body said on Saturday it had identified a second batch of public investment projects, including flood control and disaster relief programmes, under a bond issuance and investment plan announced in October to boost the economy.
With the latest tranche, China has now earmarked more than 800 billion yuan of its 1 trillion yuan ($140 billion) in additional government bond issuance in the fourth quarter, as it focuses on fiscal steps to shore up the flagging economy.
The National Development and Reform Commission (NDRC) said in a statement on Saturday it had identified 9,600 projects with planned investment of more than 560 billion yuan.
China’s economy, the world’s second largest, is struggling to regain its footing post-COVID-19 as policymakers grapple with tepid consumer demand, weak exports, falling foreign investment and a deepening real estate crisis.
The 1 trillion yuan in additional bond issuance will widen China’s 2023 budget deficit ratio to around 3.8 percent from 3 percent, the state-run Xinhua news agency has said.
“Construction of the projects will improve China’s flood control system, emergency response mechanism and disaster relief capabilities, and better protect people’s lives and property, so it is very significant,” the NDRC said.
The agency said it will coordinate with other government bodies to make sure that funds are allocated speedily for investment and that high standards of quality are maintained in project construction.
($1 = 7.1315 renminbi)
© Reuters. Russian Central Bank Governor Elvira Nabiullina attends a news conference in Moscow, Russia June 14, 2019. REUTERS/Shamil Zhumatov/File Photo
MOSCOW (Reuters) – Russia’s central bank will need two to three months to make sure that inflation is steadily declining before taking any decision on interest rate cuts, the bank’s governor Elvira Nabiullina told RBC media on Sunday.
The central bank raised its key interest rate by 100 basis points to 16% earlier in December, hiking for the fifth consecutive meeting in response to stubborn inflation, and suggested that its tightening cycle was nearly over.
Nabiullina said it was not yet clear when exactly the regulator would start cutting rates, however.
“We really need to make sure that inflation is steadily decreasing, that these are not one-off factors that can affect the rate of price growth in a particular month,” she said.
Nabiullina said the bank was taking into account a wide range of indicators but primarily those that “characterize the stability of inflation”.
“This will take two or three months or more – it depends on how much the wide range of indicators that characterize sustainable inflation declines,” she said.
The bank will next convene to set its benchmark rate on Feb. 16.
The governor also said the bank should have started monetary policy tightening earlier than in July, when it embarked on the rate-hiking cycle.
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