OECD Secretary-General Mathias Cormann said the global economic outlook is “slightly brighter” this year but inflation challenges remain.
“The outlook for the world is slightly brighter at the beginning of 2023 than what we thought it would be just two or three months ago,” he told CNBC’s “Street Signs Asia” on Friday.
“Indeed, energy and food prices are substantially lower than what they were at their peaks,” noted the OECD chief, ahead of a G-20 financial leaders meeting this week in Bengaluru, India.
Energy prices have fallen significantly because Europe was able to ”successfully” diversify its sources of energy, Cormann noted. In addition, a “benign winter” helped to reduce energy demand which kept gas prices low, he said.
In November, the OECD said “Russia’s war of aggression against Ukraine has provoked a massive energy price shock not seen since the 1970s.”
“The global economy is projected to grow well below the outcomes expected before the war – at a modest 3.1% this year [2022], before slowing to 2.2% in 2023 and recovering moderately to a still sub-par 2.7% pace in 2024,” it added.
That report further highlighted Asian emerging-market economies are expected to account for close to three-quarters of global GDP growth in 2023, as Europe and the U.S. slow down sharply.
Inflation risks
Still, inflation risks continue to persist and need to be tackled well, said the OECD chief.
“Inflation is starting to tick down, but we are not on top of the inflation challenge yet. There is more work to be done to tackle inflation and that comes with risks,” noted Cormann. “And these are risks that will need to continue to be managed well over the weeks and months.”
The OECD chief highlighted the U.S. Federal Reserve took “aggressive action last year,” in terms of hiking interest rates to rein in surging price pressures.
Now the Fed continues to fight inflation in “a more steady fashion allowing the data to come through and allowing… the measures that are in the pipeline to take effect,” Cormann noted. “That is what we expect central banks around the world to do, to continue to monitor the data and to continue to adjust the decisions.”
In early February, the U.S. central bank raised its benchmark interest rate by a quarter percentage point and gave little indication it is nearing the end of this hiking cycle.
Last month, the OECD chief highlighted China’s reopening is “overwhelmingly positive” in the global fight to tackle surging inflation. In early December, Beijing suddenly shifted away from its zero-Covid policy.
“Over the medium to longer term, this is a very much a positive in terms of making sure that the supply chains function more efficiently and more effectively, making sure that demand in China and indeed trade more generally resumes in a more positive pattern,” Cormann told CNBC at the World Economic Forum in Davos, Switzerland.