Global economic growth forecasts slashed, as world struggles with high inflation and Chinese slowdown

Global economic growth forecasts slashed, as world struggles with high inflation and Chinese slowdown
  • PublishedSeptember 20, 2023

New economic forecasts are painting a bleak picture for the world’s economy in 2024, dragged down by persistent inflation and ongoing problems in China.

The federal government is warning that it could translate to an economic slowdown and higher unemployment in Australia. 

The Organisation for Economic Cooperation and Development’s (OECD) latest growth forecasts have revised this year’s figures upwards, based on surprising economic resilience, but scaled back expectations for next year.

The global economy is now forecast to grow 2.7 per cent next year, and Australia’s economy just 1.7 per cent.

The OECD, an international organisation made up of 38 wealthy countries, points to two main challenges.

The first is the impact of interest rate rises across the globe, necessary to rein in inflation, which it expects is yet to be felt in full.

The second is an end to the rebound in China’s economy after its post-pandemic reopening, with its economy forecast to slow significantly.

The forecast also points to ongoing problems in China’s property market, which is enduring its strongest downturn in decades.

The OECD wants its member countries to take steps to build an economic buffer, and contain the impact of the slowdown.

It wants governments to both rein in their spending and pay down their debt, to help meet future policy priorities in areas like healthcare and climate change, and absorb any unforeseen economic shocks.

And it suggests countries pull back on broad spending programs, like power bill handouts to households.

“Many fiscal support measures, including remaining energy support schemes, need to be scaled back and become better targeted on those most in need, particularly vulnerable households inadequately covered by existing social protection systems,” it said.

But the OECD said that should not come at a cost to programs aimed at encouraging the climate transition.

Australia approaching challenges from ‘enviable position’: Chalmers

Federal Treasurer Jim Chalmers has warned Australia’s economy won’t be immune from global challenges, but is reasonably well placed to manage them.

“High interest rates, persistent inflation and the slowdown in China, particularly its struggling property sector, are all weighing on the global outlook,” he said.

“While we expect our economy to slow considerably over the coming year and the unemployment rate to tick up, we enter this period of uncertainty from an enviable position.

“We have a strong labour market, wages are getting moving again, and we continue to get good prices for what we sell to the world.”

The forecast points to Australia’s housing market bucking a softening global trend.

While house prices have fallen substantially in many G20 countries, like the UK, Korea and Germany, the OECD points out that prices in the US, Canada and Australia are picking back up.

It suggests strong population growth and limited housing supply are largely behind the growth in prices.

Mr Chalmers said the OECD’s advice to governments about reigning in spending aligns with his budget approach.

“The OECD stresses the importance of countries rebuilding their fiscal buffers so they are in a position to respond effectively to future shocks – this is consistent with the Albanese government’s budget strategy and is one of the reasons why delivering a surplus in 2022-23 is so important,” he said.

Employment white paper to be delivered next week

The treasurer also confirmed one of the government’s most significant policy documents, its ‘Employment White Paper’, would be released next Monday.

It will set out how the government intends to tackle some of the most complex economic challenges facing the country — including lacklustre productivity and long-running sluggish wages growth.

It will set out five objectives — delivering full employment, promoting job security and wage growth, productivity growth, filling skills needs and overcoming barriers to employment.

The paper will also attempt to clearly define what ‘full employment’ actually means, responding to calls from the Reserve Bank review to give the government and other agencies a better idea of what they’re working towards.

And it will also touch on some of the issues around Australia’s current migration system — looking at what reforms might achieve in an economic sense.


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