OECD raises India and global growth outlook for 2024, warns of Middle East crisis 'risk'

The Organisation for Economic Co-operation and Development (OECD) raised its world economic growth forecast for 2024, on Monday (Feb 5) and lifted the outlook for India’s economy as well. However, the Paris-based organisation warned that the conflict in the Middle East posed a threat to global growth as disruptions in Red Sea shipping may increase consumer prices.

About India’s growth forecast

According to the OECD’s latest growth forecast, the Indian economy is expected to grow 6.2 per cent which is up from 6.1 per cent predicted in its November report. Meanwhile, the prediction for 2025 in both reports remained unchanged at 6.5 per cent.

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The OECD’s latest report noted that “clear signs of strong near-term momentum continue in India, relative weakness in Europe, and mild near-term growth in most other major economies.”

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India is also expected to expand steadily over the next two years, according to the OECD, due to “strong investment growth” and GDP rising by more than six per cent per annum.

The report also noted that in countries like Brazil, India, Indonesia, Mexico and South Africa, the inflation is expected to ease and converge on or towards the central bank targets by the end of next year.

What about global growth?

According to the Paris-based organisation, the global economy is on course to hold up better this year than expected with world economic growth expected at 2.9 per cent, which is up from 2.7 per cent predicted in its previous forecast.

Global growth “proved unexpectedly resilient” in 2023, reaching 3.1 per cent, according to the report and the inflation declined faster than anticipated.

“The global economy has shown real resilience amid the high inflation of the past two years and the necessary monetary policy tightening. Growth has held up, and we expect inflation to be back to central bank targets by the end of 2025 in most G20 economies,” said OECD Secretary-General Mathias Cormann, in a statement.

The global growth is also said to have been expanded as the United States economy is expected to grow 2.1 per cent in 2024 which is up from 1.5 per cent predicted in OECD’s November forecast as lower inflation boosted wage growth and is expected to trigger interest rate cuts, said the organisation.

The growth forecast for the US economy for 2025 remained unchanged at 1.7 per cent.

The Middle East factor

According to the OECD, the attacks on Red Sea shipping lanes by Yemen’s Houthi rebels and the ongoing war between Israel and the Palestinian militant group Hamas in Gaza could add to inflationary pressures.

Houthis have said that they are targeting Israel-linked ships in solidarity with the Palestinians. Meanwhile, the US and the United Kingdom have responded with strikes against the Houthis.

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“High geopolitical tensions are a significant near-term risk to activity and inflation, particularly if the conflict in the Middle East were to disrupt energy markets,” said the OECD report.

Similarly, OECD chief economist Clare Lombardelli, noted that the attacks on Red Sea shipping are already affecting the trade. “Freight rates have more than doubled since the end of last year,” Lombardelli said at a news conference.

The OECD warned that the increase in shipping costs, if persistent, could add 0.4 percentage points to consumer prices inflation after about a year.

(With inputs from agencies)