The OECD (Organisation for Economic Co-operation and Development), is a forum for 37 democracies to collaborate on policy standards to promote sustainable economic growth. The OECD publishes economic reports, statistical databases, analyses, and forecasts on the outlook for economic growth worldwide. The OECD Economics Department combines cross-country research with in-depth country-specific expertise on structural and macroeconomic policy issues. The OECD supports policymakers in pursuing reforms to deliver strong, sustainable, inclusive and resilient economic growth, by providing a comprehensive perspective that blends data and evidence on policies and their effects, international benchmarking and country-specific insights. Economic policy encompasses a broad range of strategies employed by governments to optimise economic performance. It includes areas such as fiscal policy, which deals with government spending and revenues; monetary policy, focused on controlling the money supply and interest rates; structural reform, aimed at enhancing long-term economic efficiency and competitiveness; and regulatory reform, which focuses on updating and streamlining economic regulations.
There are signs that the global outlook has started to brighten, though growth remains modest. The impact of tighter monetary conditions continues, especially in housing and credit markets, but global activity is proving relatively resilient, inflation is falling faster than initially projected and private sector confidence is improving. Supply and demand imbalances in labour markets are easing, with unemployment remaining at or close to record lows. Real incomes have begun to improve as inflation moderates and trade growth has turned positive. Developments continue to diverge across countries, with softer outcomes in many advanced economies, especially in Europe, offset by strong growth in the United States and many emerging market economies. Global growth in 2023 continued at an annual rate above 3%, despite the drag exerted by tighter financial conditions and other adverse factors, including Russia’s war of aggression against Ukraine and the evolving conflict in the Middle East. Global GDP growth is projected at 3.1% in 2024 and 3.2% in 2025, little changed from the 3.1% in 2023. This is weaker than seen in the decade before the global financial crisis, but close to currently estimated potential growth rates in both advanced and emerging market economies. Headline inflation fell rapidly in most economies during 2023, driven down by restrictive monetary policy settings, lower energy prices and continued easing of supply chain pressures. Food price inflation also came down sharply in most countries, as good harvests for key crops such as wheat and corn saw prices fall rapidly from highs reached after the start of the war in Ukraine. Core goods price inflation has generally fallen steadily, but services price inflation has been stickier, remaining well above pre-pandemic averages in most countries. Artificial intelligence (AI) holds the potential for reviving trend productivity growth and triggering an acceleration of innovation, even if estimates of the impact of AI on productivity are subject to considerable uncertainty. The share of firms making use of AI has risen rapidly, though most of these are large companies. The net effect of AI on aggregate productivity will depend on many factors, including the extent to which new technologies are widely diffused or concentrated in a few leading firms, and the extent to which AI is labour enhancing as opposed to labour replacing.
Some key advises and suggestions fro OECD are that monetary policy needs to remain prudent to ensure that underlying inflationary pressures are durably contained. Scope exists to start lowering nominal policy rates provided inflation continues to ease, but the policy stance should remain restrictive for some time to come. The pace and scale of policy rate reductions will be data dependent and may vary across countries depending on economic conditions. Fiscal policies need to address mouting pressures to ensure debt sustainability. The ratio of government debt to GDP is projected to rise further in many countries. Governments face mounting fiscal challenges from rising debt service costs and sizeable additional spending pressures from ageing populations, climate change mitigation and adaptation, defence and the need to finance new reforms. Without action, future debt burdens will rise significantly. Stronger near-term efforts to contain spending growth, reforms to enhance revenues, and early establishment of credible medium-term spending and tax plans tailored to country-specific developments are necessary.
Focus on structural policies to improve growth .Prospects for long-term growth and improvements in living standards appear modest. Stronger policy action is required to boost investment and enhance skills development and intensify innovation, to drive technological progress and productivity growth and boost employment. Innovation is crucial for a successful and cost-effective climate transition. While the majority of research efforts are undertaken in the private sector, government policies can and should continue helping foster innovation. Well-designed public support for R&D – both for basic government-funded research as well as through direct grants to businesses or R&D tax incentives – should aim to complement private investment, with rigorous evaluation of public efforts built into national investment strategies.
Global growth proved surprisingly resilient in 2023, with lower energy prices and fading supply chain pressures helping inflation to decline more quickly than anticipated. However, recent indicators point to some moderation of growth. In the absence of further adverse supply shocks, cooling demand pressures should allow headline and core inflation to fall further in most economies. By the end of 2025 inflation is projected to be back to target in most G20 countries. Geopolitical risks remain high, particularly in relation to the ongoing conflict in the Middle East. Further upside surprises in inflation could trigger sharp corrections in financial asset prices as markets price in that policy rates may be higher for longer periods of time. Both headline and core inflation fell during 2023. Some of the factors assisting disinflation over the past year are now dissipating or reversing, while others are vulnerable to geopolitics, extreme weather or unpredictable events. With inflation still above target, and unit labour cost growth generally remaining above levels compatible with medium-term inflation objectives, it is too soon to confirm whether the inflationary episode that began in 2021 is over. High-frequency activity indicators generally suggest a continuation of recent moderate growth. Across countries, clear signs of strong near-term momentum continue in Asia, relative weakness in Europe, and mild near-term growth in most other major economies. Global growth, which rose by an estimated 3.1% in 2023, is projected to slow to 2.9% in 2024 and then increase to 3.0% in 2025
—The writer is former Civil Servant, based in Islamabad.
