Central banks risk plunging developed world into recession – OECD

Central bankers’ continued fight to bring rampant inflation under control could plunge developed countries into recession next year, the Organization for Economic Co-operation and Development (OECD) has warned.

According to its global outlook, issued earlier this week, the tightening of monetary policy since early 2022 is slowing domestic demand growth, while interest rates continue to rise in many economies.

Although the OECD forecasts a “soft landing” for the global economy, it warned that the risks to that view are “pretty high” due to actions by policymakers. “It is unclear how much of the past tightening has fed through and how much is yet to come,” said Clare Lombardelli, the OECD’s chief economist.

The OECD’s 38 member states are forecast to grow by 1.7% in 2023 and 1.4% in 2024, according to the outlook. The global economy is projected to expand by 2.9% in 2023 and 3% in 2024, boosted by growth in non-members India and China.

The report said Germany would be the worst-performing developed economy this year, contracting by 0.1% before recovering to post 0.6% growth in 2024. Overall, the 20-nation Eurozone is expected to expand by 0.6% this year, against 2.4% in the US.

The OECD also raised concerns that the Israel-Hamas conflict could spill over into a wider regional conflict. “This could result in significant disruptions to energy markets and major trade routes, and additional risk repricing in financial markets, that would slow growth and add to inflation.”

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