Is latest global steady economic growth real?

The OECD comprises of 38 member countries founded in 1961 to stimulate economic progress and world trade.

DESPITE having endured many major challenges and setbacks over the past half a decade ranging from the COVID-19 pandemic, the impact of the Eastern wars (Ukraine, Sudan and Gaza) and the raging climate crisis, the global economic outlook shows a possible steady growth, at least according to the Organisation for Economic Co-operation and Development (OECD).

The OECD comprises of 38 member countries founded in 1961 to stimulate economic progress and world trade. It is a forum whose member countries describe themselves as committed to democracy and the market economy, providing a platform to compare policy experiences and seek answers to common problems. It also seeks to identify good practices and co-ordinate domestic and international policies of its members. Most OECD members are described as high-income economies ranked as very high on the Human Development Index and are regarded as developed countries.

In short, most of its member countries are involved in the ongoing major wars in Eastern Europe, the Middle East and Eastern Africa. And the economic projection may be part of the propaganda ahead of several major elections. Or maybe, it is just how they choose to see the situation despite that the wars are taking a huge toll on economies.

Nonetheless, considering that most major global economies will hold elections this year — if the projections are anything to go by — this shows that economies have become increasingly resilient to major shocks. It may also mean that they have found ways of navigating some emerging challenges that threatened economic recovery after the COVID-19-induced pandemic.

It may also mean that global economies have found opportunities in some of the major wars with the economic benefits far outweighing the negative impacts. Some literature shows that the impact of external wars on economic growth tends to be primarily temporary as markets quickly shift to absorb the war industry into their arms and become part of their major sectors.

The war industry, despite its harmfulness to life, traumatising effect, economic disruption, immorality and humanitarian impact, is seen by some dirty investors as an opportunity for quick money and more profitable because of the unchecked government expenditure. The excessively high-profit margins are seen as among the reasons wars become protracted.

Nonetheless, the global economy is continuing to grow at a modest pace, according to the OECD’s latest economic outlook. The economic outlook also projects steady global gross domestic product growth of 3,1% in 2024, the same as the 3,1% in 2023, followed by a slight pick-up to 3,2% in 2025. The organisation further notes that the impact of tight monetary conditions continues to be felt in Western markets, particularly in housing and credit markets, but global activity is proving relatively resilient, the decline in inflation continues and private sector confidence is improving.

Real incomes are expected to rise in many OECD countries as inflation moderates and trade growth has turned positive. The outlook continues to differ across countries, with weaker outcomes in many advanced economies, especially in Europe and strong growth in the United States and many emerging market economies.

Whether this outlook reflects reality or not, the organisation notes that significant uncertainties remain due to the economic instability in China, global wars and a lack of disposable income among households.

Inflation may remain higher for longer thus resulting in slower-than-expected reductions in policy interest rates and leading to further financial vulnerabilities. Slow economic growth in China due to the persistent weakness in property markets or smaller-than-anticipated fiscal support over the next two years could disrupt global growth. Current major wars and geopolitical tensions also remain a persistent significant risk to economic activity and inflation, particularly the ongoing conflicts in the Middle Eastern and Eastern Europe and their logistical impact on the Black and Red Seas.

Whether it is by design or default, there is no mention of addressing or stopping the major wars among the recommendations provided by the OECD as a means to sustain the projected economic growth. It instead highlights the need for durable reduction in inflation, establish a budgetary path to address rising fiscal pressures, and undertake reforms that improve prospects for medium-term growth.

“The foundations for future output and productivity growth need to be strengthened by ambitious structural policy reforms to improve human capital and take advantage of technological advances,” says OECD chief economist Clare Lombardelli.

The International Monetary Fund provides a sobering and more objective economic outlook which shows that future growth prospects are souring. Global growth will slow to just above 3% by 2029, according to their latest World Economic Outlook report. This is threatening to reverse improvements to living standards, and the unevenness of the slowdown between richer and poorer nations could limit the prospects for global income convergence. It recommends strengthening and promoting the key drivers of economic growth which includes labour, capital and productivity as a way out of the potential economic crisis.

Tapiwa Gomo is a development consultant based in Pretoria, South Africa. He writes here in his personal capacity.

Related Topics