The global economy was stronger than expected in the first half of 2023, but the growth outlook is weak, according to the latest Interim Economic Outlook by the Organisation for Economic Cooperation and Development.

With monetary policy working its way through economies and a weaker-than-expected recovery in China, the Outlook projects global growth of 3.0% in 2023 and 2.7% in 2024. A disproportionate share of global growth in 2023-24 is expected to continue to come from Asia, despite the weaker-than-expected recovery in China.

Headline inflation has been declining, as energy and food prices have dropped, but remains above central banks’ targets in many countries, the OECD noted.

Headline inflation is projected to continue receding gradually through 2023 in G20 countries, from 7.8% in 2022 to 6.0% in 2023 and 4.8% in 2024. Core inflation remains persistent, driven by the services sector and still relatively tight labour markets, and will require central banks in many countries to maintain a restrictive stance of monetary policy, the report noted.

In the euro area, where demand is already subdued, GDP growth is projected to ease to 0.6% in 2023, and edge up to 1.1% in 2024 as the adverse impact of high inflation on real incomes fades. China’s recovery is weaker than expected following the post-pandemic re-opening, with growth projected at 5.1% this year and 4.6% in 2024.

Annual GDP growth in the US is projected at 2.2% in 2023 and 1.3% in 2024, with the slowdown driven by cooler labour markets and more generally the effects of tighter monetary policy.

OECD Secretary-General Mathias Cormann said, “Further significant stress in financial markets has been avoided so far, after the turbulence due to bank failures earlier in the year. That said, the global economy continues to confront the challenges of elevated inflation, low growth and comparatively weak trade.

“The priority for macroeconomic policy is to reduce inflation and re-build fiscal buffers,” Cormann said. “In parallel, in order to lay the groundwork for stronger and more sustainable growth longer term, policy action is needed to enhance competition, accelerate investment in low-carbon research and development and reduce rather than increase trade barriers.”