The Organisation for Economic Cooperation and Development (OECD) announced today that global growth is stabilizing as the impact of central bank interest rate hikes diminishes and falling inflation bolsters household incomes. The OECD has slightly revised its growth projections, forecasting a 3.2% increase in the global economy for both this year and next, up from a previous estimate of 3.1% for 2024. The outlook for 2025 remains unchanged.
As the delayed effects of monetary tightening fade, the OECD noted that anticipated interest rate cuts will stimulate spending, while lower inflation will further enhance consumer purchasing power. In a report released today, the OECD suggested that if the recent decline in oil prices continues, global headline inflation could be reduced by 0.5 percentage points in the coming year.
The OECD also projected that inflation rates are nearing central bank targets, leading to expectations of easing interest rates. Specifically, it anticipates the US Federal Reserve will lower its main interest rate to 3.5% by the end of 2025, down from the current range of 4.75%-5%. Similarly, the European Central Bank is expected to cut its rate from 3.5% to 2.25%.
In the United States, growth is forecast to slow from 2.6% this year to 1.6% in 2025. However, the OECD believes that interest rate cuts will help cushion this economic slowdown, resulting in a downward revision of its 2025 growth estimate from 1.8% to 1.6%.
Meanwhile, the Chinese economy is expected to decelerate from 4.9% growth in 2024 to 4.5% in 2025. This slowdown is attributed to government stimulus measures being offset by weaker consumer demand and challenges in the real estate sector.
On a brighter note, the eurozone is projected to nearly double its growth rate from 0.7% this year to 1.3% in 2024, driven by faster income growth than inflation. Additionally, the OECD has improved its outlook for the UK economy, now forecasting a 1.1% expansion in 2024 and 1.2% in 2025, a significant increase from the previous forecasts of 0.4% and 1%, respectively.
Commitment to Global Tax Reform
In related news, the OECD reaffirmed its commitment to finalizing a global tax pact aimed at multinationals. This pact seeks to redistribute taxing rights primarily for major US digital companies, following delays from some countries. OECD tax director Manal Corwin stated there is “100% commitment among members” to reach an agreement, highlighting the urgency of finalizing the deal before year-end.
While many countries are moving forward with implementing the second pillar of the 2021 global tax agreement—which includes a 15% minimum corporate tax rate—discussions continue regarding alternative transfer pricing calculations. The OECD has reported that 19 countries have signed or committed to treaties allowing developing nations to tax certain outbound intra-company payments.
