(Bloomberg) — The world’s economic outlook is perking up as growth proves more resilient and inflation is set to cool faster than previously expected in many countries, the OECD said.
While conflicts in the Middle East or more persistent price increases could still knock the economy from its more stable footing, the Paris-based organization said risks are becoming “better balanced.”
The OECD raised the 2024 global growth forecast to 3.1% — from 2.9% in February — with notable improvements in its expectations for the US, China and India. The expansion should continue at 3.2% next year.
The brighter outlook indicates the world economy looks to avoid entering a stagflationary rut — a period of sluggish growth and rising unemployment mixed with elevated inflation — even if the pace of expansion won’t return soon to the 3.4% average in the years before the pandemic and energy crisis.
Inflation will be softer than the OECD forecast three months ago, with the exception of the US, where it now expects prices to rise 2.5% this year instead of 2.2%. Still, it said US policy makers should be able to reduce interest rates in the second half of the year.
On Wednesday in Washington, Federal Reserve Chair Jerome Powell kept hopes alive for a rate cut in 2024 while acknowledging that a burst of inflation has reduced policymakers’ confidence that price pressures are ebbing.
The OECD’s assessment corroborates the slightly more positive views of other international institutions, including the International Monetary Fund which also lifted its forecasts last month.
Read More: Factories Around the World Are Slowly Cranking Into Gear Again
“Cautious optimism has begun to take hold in the global economy, despite modest growth and the persistent shadow of geopolitical risks,” OECD Chief Economist Clare Lombardelli said. “Inflation is easing faster than expected, labor markets remain strong with unemployment at or near record lows.”
In the recovery, the OECD said divergence between strong growth in the US and a more sluggish Europe will persist in the near term, creating a “mixed macroeconomic landscape.” That will translate into differing paces of interest rate cuts, with the European Central Bank set to begin easing before the Fed.
Still, the OECD said monetary authorities should be cautious because conflicts could push up energy prices and inflation, and the softening of cost pressures may also be slower than expected in services.
“Monetary policy needs to remain prudent to ensure that underlying inflationary pressures are durably contained,” the OECD said.
For governments, it said the improving economic backdrop provides the opportunity to tackle bloated debt burdens that risk swelling further as higher borrowing costs feed through. It also cautioned countries will face growing spending demands from aging populations, climate change and needs to bolster defense.
“In the medium and longer term, the fiscal position is worrying,” Lombardelli said. “A robust medium-term approach to containing spending, building revenues, and focusing policy efforts on growth-enhancing structural reforms are all needed.”
TORONTO – Canada’s main stock index was higher in late-morning trading, helped by strength in energy stocks, while U.S. stock markets also moved up.
The S&P/TSX composite index was up 34.91 points at 23,736.98.
In New York, the Dow Jones industrial average was up 178.05 points at 41,800.13. The S&P 500 index was up 28.38 points at 5,661.47, while the Nasdaq composite was up 133.17 points at 17,725.30.
The Canadian dollar traded for 73.56 cents US compared with 73.57 cents US on Monday.
The November crude oil contract was up 68 cents at US$69.70 per barrel and the October natural gas contract was up three cents at US$2.40 per mmBTU.
The December gold contract was down US$7.80 at US$2,601.10 an ounce and the December copper contract was up a penny at US$4.28 a pound.
This report by The Canadian Press was first published Sept. 17, 2024.
OTTAWA – Canada’s inflation rate fell to two per cent last month, finally hitting the Bank of Canada’s target after a tumultuous battle with skyrocketing price growth.
The annual inflation rate fell from 2.5 per cent in July to reach the lowest level since February 2021.
Statistics Canada’s consumer price index report on Tuesday attributed the slowdown in part to lower gasoline prices.
Clothing and footwear prices also decreased on a month-over-month basis, marking the first decline in the month of August since 1971 as retailers offered larger discounts to entice shoppers amid slowing demand.
The Bank of Canada’s preferred core measures of inflation, which strip out volatility in prices, also edged down in August.
The marked slowdown in price growth last month was steeper than the 2.1 per cent annual increase forecasters were expecting ahead of Tuesday’s release and will likely spark speculation of a larger interest rate cut next month from the Bank of Canada.
“Inflation remains unthreatening and the Bank of Canada should now focus on trying to stimulate the economy and halting the upward climb in the unemployment rate,” wrote CIBC senior economist Andrew Grantham.
Benjamin Reitzes, managing director of Canadian rates and macro strategist at BMO, said Tuesday’s figures “tilt the scales” slightly in favour of more aggressive cuts, though he noted the Bank of Canada will have one more inflation reading before its October rate announcement.
“If we get another big downside surprise, calls for a 50 basis-point cut will only grow louder,” wrote Reitzes in a client note.
The central bank began rapidly hiking interest rates in March 2022 in response to runaway inflation, which peaked at a whopping 8.1 per cent that summer.
The central bank increased its key lending rate to five per cent and held it at that level until June 2024, when it delivered its first rate cut in four years.
A combination of recovered global supply chains and high interest rates have helped cool price growth in Canada and around the world.
Bank of Canada governor Tiff Macklem recently signalled that the central bank is ready to increase the size of its interest rate cuts, if inflation or the economy slow by more than expected.
Its key lending rate currently stands at 4.25 per cent.
CIBC is forecasting the central bank will cut its key rate by two percentage points between now and the middle of next year.
The U.S. Federal Reserve is also expected on Wednesday to deliver its first interest rate cut in four years.
This report by The Canadian Press was first published Sept. 17, 2024.
FREDERICTON – New Brunswick‘s finance minister says the province recorded a surplus of $500.8 million for the fiscal year that ended in March.
Ernie Steeves says the amount — more than 10 times higher than the province’s original $40.3-million budget projection for the 2023-24 fiscal year — was largely the result of a strong economy and population growth.
The report of a big surplus comes as the province prepares for an election campaign, which will officially start on Thursday and end with a vote on Oct. 21.
Steeves says growth of the surplus was fed by revenue from the Harmonized Sales Tax and federal money, especially for health-care funding.
Progressive Conservative Premier Blaine Higgs has promised to reduce the HST by two percentage points to 13 per cent if the party is elected to govern next month.
Meanwhile, the province’s net debt, according to the audited consolidated financial statements, has dropped from $12.3 billion in 2022-23 to $11.8 billion in the most recent fiscal year.
Liberal critic René Legacy says having a stronger balance sheet does not eliminate issues in health care, housing and education.
This report by The Canadian Press was first published Sept. 16, 2024.
