The global economy is growing faster than expected only a few months ago thanks to resilient US activity while inflation is converging more quickly than expected with central banks’ targets, the OECD said on Thursday (May 2), upgrading its outlook.

The global economy would maintain the 3.1 per cent growth rate seen last year and pick up marginally to 3.2 per cent next year, the Organisation for Economic Cooperation and Development (OECD) said, upgrading forecasts dating from February for growth of 2.9 per cent this year and 3 per cent in 2025.

A faster than expected fall in inflation sets the stage for major central banks to begin rate cuts in the second half of the year while also fuelling gains in consumers’ incomes, the OECD said in its latest Economic Outlook.

However, the speed of recoveries diverged widely, the OECD warned, saying lingering sluggishness in Europe and Japan was being offset by the United States, whose growth forecast was hiked to 2.6 per cent this year from a previous estimate of 2.1 per cent.

Next year, US growth was expected to cool to a rate of 1.8 per cent, up slightly from 1.7 per cent in February.

Boosted by fiscal stimulus, China’s economy was also expected to grow faster than expected with its growth now forecast at 4.9 per cent in 2024 and 4.5 per cent in 2025, up from 4.7 per cent and 4.2 per cent respectively in February.

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While weakness in Germany would continue to weigh on the broader eurozone, the bloc’s growth was projected to pick up from 0.7 per cent this year to 1.5 per cent next year as lower inflation boosts households’ purchasing power and paves the way for rate cuts.

The OECD had previously forecast eurozone growth of 0.6 per cent this year and 1.3 per cent in 2025.

Britain’s outlook was one of the few to be downgraded with the OECD now forecasting only 0.4 per cent this year compared with 0.7 per cent previously.

As interest rates start coming lower from the third quarter of this year, UK growth was seen picking up to 1 per cent in 2025, compared with 1.2 per cent expected in February.

Meanwhile, in Japan, income gains, easy monetary policy and temporary tax cuts would help its growth rate to accelerate from 0.5 per cent in 2024 to 1.1 per cent in 2025, compared with forecasts of 1 per cent for both years previously, the OECD said. REUTERS