OECD hikes its growth forecasts for major economies, but warns recovery fragile
The global economic outlook has improved from a few months ago as the inflation shock eases, but rising interest rates will keep risks high, the OECD said on Friday, hiking its growth forecasts for major economies.
After growth last year of 3.2 per cent, the world economy is on course to expand 2.6 per cent as central bank tightening takes full effect, the Organization for Economic Co-operation and Development said in its interim economic outlook.
The Paris-based organization raised its forecast for global growth from 2.2 per cent in its last Economic Outlook in November, citing a decline in energy and food prices and China’s easing of its anti-COVID restrictions.
Looking to next year, global growth was expected to accelerate to 2.9 per cent – compared with a November forecast of 2.7 per cent – as the hit to household incomes from high energy prices faded.
The OECD forecast that inflation in the Group of 20 major economies would fall from 8.1 per cent last year to 5.9 per cent this year and further decline to 4.5 per cent in 2024 – still well above targets despite interest rate hikes by many central banks.
It said the full impact of higher interest rates was hard to gauge, warning that increased stress for borrowers could translate into losses for some banks, citing the recent collapse of Silicon Valley Bank in the United States as an example.
Setting aside turmoil in financial markets following SVB’s failure and continued worries about Swiss lender Credit Suisse, the European Central Bank hiked interest rates by a further half percentage point on Thursday to fight inflation.
The OECD projected that central bank policy rates would peak at 5.25-5.5 per cent in the United States and 4.25 per cent in the euro area and Britain with a decline in inflation possibly allowing for a “mild” easing next year.
The OECD forecast that U.S. economic growth would slow from 1.5 per cent this year to 0.9 per cent next year as higher interest rates cooled demand. With the U.S. labour market holding up better than expected, the forecast for this year was up from 0.5 per cent in November and down from 1.0 per cent for 2024.
Boosted by the easing of anti-COVID measures, the Chinese economy was seen growing 5.3 per cent this year and 4.9 per cent in 2024, up from November forecasts for 4.6 per cent and 4.1 per cent respectively.
The outlook for the euro area had also improved thanks to a drop in energy prices with the 20-nation bloc expected to see growth this year of 0.8 per cent followed by 1.5 per cent in 2024. The OECD had previously forecast 0.5 per cent and 1.4 per cent growth respectively.
UK economy avoids recession but businesses still wary
LONDON, March 31 (Reuters) – Britain’s economy avoided a recession as it grew in the final months of 2022, according to official data which showed a boost to households’ finances from state energy bill subsidies but falling investment by businesses.
With the economy still hobbled by high inflation and worries about a weak growth outlook, gross domestic product (GDP) increased by 0.1% between October and December after a preliminary estimate of no growth.
GDP in the third quarter was also revised to show a 0.1% contraction, a smaller fall than initially thought, the Office for National Statistics (ONS) said on Friday.
Two consecutive quarters of contraction would have represented a recession.
Despite the improvement, British economic output remained 0.6% below its level of late 2019, the only G7 economy not to have recovered from the COVID-19 pandemic.
“The latest release takes the UK a little further away from the recessionary danger zone although the report does not change the overall picture that the economy’s performance was lacklustre over the second half of 2022 as the cost of living crisis hit hard,” Investec economist Philip Shaw said.
The International Monetary Fund forecast in January that Britain would be the only Group of Seven major advanced economy to shrink in 2023, in large part because of an inflation rate that remains above 10%.
Since then, a string of economic data has come in stronger than expected by analysts.
Ruth Gregory at Capital Economics said Friday’s figures showed high inflation had taken a slightly smaller toll than previously thought.
“But with around two-thirds of the drag on real activity from higher rates yet to be felt, we still think the economy will slip into a recession this year,” she said.
House prices slid in March at the fastest annual rate since the financial crisis, mortgage lender Nationwide said.
The Bank of England (BoE) last week raised interest rates for the 11th consecutive meeting and investors are split on the possibility of another increase in May.
Britain’s dominant services sector rose by 0.1%, boosted by a nearly 11% jump for travel agents, echoing other data which has pointed to a surge in demand for holidays.
Manufacturing grew by 0.5%, driven by the often erratic pharmaceutical sector, and construction grew by 1.3%.
Individuals’ savings were boosted by the government’s energy bill support scheme and households’ disposable income increased by 1.3% after four consecutive quarters of negative growth.
The BoE expects Britain’s economy to have contracted by 0.1% in the first three months of 2023 but it forecasts slight growth in the second quarter.
The outlook has improved thanks in large part to falling international energy prices and a strong jobs market.
But the picture could darken again if recent turmoil in the global banking sector leads to lenders reining in loans.
BUSINESS INVESTMENT FALLS
The data suggested businesses remained cautious. Business investment fell 0.2% in quarterly terms, a sharp downgrade from a first estimate of a 4.8% rise after changes to the way the ONS calculates seasonal adjustments.
Earlier on Friday, a survey painted a more upbeat picture for businesses.
Finance minister Jeremy Hunt this month announced new tax incentives to encourage companies to invest, although they were less generous than a previous scheme and came just as corporate tax is due to jump.
The ONS said Britain posted a shortfall in its current account in the fourth quarter of 2.5 billion pounds ($3.1 billion), or 0.4% of GDP.
Excluding volatile swings in precious metals, the shortfall fell to 3.3% of GDP from 4.2% in the third quarter.
The ONS said increased foreign earnings by companies, particularly in the energy sector, helped narrow the deficit.
Britain’s financial account surplus – which shows how the current account deficit was funded – comprised large net inflows of short-term, “hot” money. Foreign direct investment was negative in net terms for a sixth quarter running.
($1 = 0.8073 pounds)
Our Standards: The Thomson Reuters Trust Principles.
Canada’s economic growth resumed in January: StatCan
Statistics Canada says economic growth resumed in January following a small contraction in December.
The agency says real gross domestic product rose 0.5 per cent to start the year after contracting 0.1 per cent in the final month of 2022.
It also says that its initial estimate for February indicates growth continued with a gain of 0.3 per cent, though it cautioned the figure will be updated.
For January, the growth came as the wholesale trade, transportation and warehousing, and mining, quarrying and oil and gas extraction sectors all rebounded after falling in December.
Wholesale trade gained 1.8 per cent in January, helped by wholesalers of machinery, equipment and supplies, while the mining, quarrying and oil and gas extraction sector grew 1.1 per cent after falling 3.3 per cent in December.
The transportation and warehousing sector added 1.9 per cent in January, more than offsetting a drop of 1.1 per cent in December that was due in part to bad weather.
This report by The Canadian Press was first published March 31, 2023
China’s No. 2 leader says economy improved in March
BO’AO, China –
China’s new No. 2 leader said Thursday its economic recovery improved in March and tried to reassure foreign companies the country is committed to opening to the world.
Premier Li Qiang spoke before an international audience of businesspeople and politicians as the government tries to revive business and consumer confidence after anti-virus controls that isolated China were abruptly dropped in December.
The economy showed “encouraging momentum of rebounding” in January and February, Li said at the Boao Forum for Asia on the southern island of Hainan.
“The situation in March is even better,” Li said. He said consumption and investment picked up and “market expectations improved.”
Chinese retail sales rose 3.5% over a year earlier in January and February, recovering from December’s 1.8% contraction, government data showed earlier. Spending on restaurants rose 9.2%. Growth in investment in real estate and other fixed assets accelerated to 5.5% from December’s 5.1%.
Li’s audience included Prime Ministers Lee Hsien Loong of Singapore, Pedro Sanchez of Spain and Anwar Ibrahim of Malaysia and International Monetary Fund Managing Director Kristalina Georgieva.
A former Communist Party secretary for Shanghai, Li took office earlier this month in a once-a-decade change of government that installed loyalists of Chinese leader Xi Jinping to enforce his vision of tighter political control over the economy and society.
The premier sought to counter unease about growing state dominance in the economy and tension with the United States over security, technology and trade.
“No matter how the world situation may evolve, we will stay committed to reform, opening up and innovation-driven development,” Li said. “We welcome countries around the world to share in the opportunities and benefits that come with China’s development.”
Li called China a global “anchor of peace,” a statement that conflicts with the ruling Communist Party’s military buildup and menacing behavior toward Taiwan, Japan and other neighbours.
The military budget, the world’s second-largest after the United States, was increased this month for a 29th straight year. Xi’s government has stepped up efforts to intimidate Taiwan, which Beijing claims as part of its territory, by flying fighter jets and firing missiles into the sea near the self-ruled island democracy.
“To achieve greater success, chaos and conflict must not happen in Asia,” the premier said. “Otherwise, the future of Asia would be lost.”
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