PARIS (Reuters) - Global growth is in the process of stabilising as the drag from central bank rate hikes fades and falling inflation boosts households' incomes, the OECD said on Wednesday, marginally raising its outlook for this year.
The world economy was projected to grow 3.2% both this and next year, the Organisation for Economic Cooperation and Development forecast, nudging up its 2024 forecast from 3.1% previously while leaving 2025 unchanged.
As the lagged impact of central bank tightening evaporates, interest rate cuts would boost spending going forward while consumer spending benefitted from lower inflation, the OECD said in an update of its latest economic outlook.
If a recent decline in oil prices persists, global headline inflation could be 0.5 percentage points lower than expected over the coming year, the Paris-based OECD said.
With inflation heading towards central bank targets, the OECD projected that the U.S. Federal Reserve's main interest rate would ease to 3.5% by the end of 2025 from 4.75%-5% currently and European Central Bank would cut to 2.25% from 3.5% now.
U.S. growth was expected to slow from 2.6% this year to 1.6% in 2025 though interest rate cuts would help cushion the slowdown, the OECD said, trimming its 2025 estimate from a forecast of 1.8% in May.
The Chinese economy, the world's second-biggest, was seen slowing from 4.9% in 2024 to 4.5% in 2025 as government stimulus spending is offset by flagging consumer demand and a real estate rut.
The euro zone would help make up for slower growth in the two biggest economies next year with the 20-nation bloc's growth forecast to nearly double from 0.7% growth this year to 1.3% as incomes grow faster than inflation.
The OECD hiked its outlook for the UK economy amid high wage growth, projecting the UK economy expanding by 1.1% in 2024 and 1.2% in 2025, up from May forecasts for 0.4% this year and 1% next year.