Improved economic outlook paves the way for building positive momentum


Editor's note: Matteo Giovannini is a finance professional at the Industrial and Commercial Bank of China in Beijing and a member of the China Task Force at the Italian Ministry of Economic Development. The article reflects the author's views, and not necessarily those of CGTN.

Over the last three years the global economy has faced significant challenges due to the outbreak of COVID-19 pandemic that has triggered the largest global economic crisis in over a century resulting in a sharp reduction in productivity, job losses and an increase in inequality within and across countries.

Therefore, the attention to the work of multilateral agencies is now highly monitored at both government and corporate level. This is because these international institutions offer solid statistical data and indicators aimed at helping administrations and businesses to navigate a complex and ever-evolving post pandemic world and to draft better policies and strategies.

On March 17, the Organization for Economic Cooperation and Development (OECD), a Paris-based intergovernmental organization with 38 member countries founded in 1961 to stimulate economic progress and world trade, released its interim report on global economic prospects.

The updated data from the OECD's latest Interim Economic Outlook show a global gross domestic product that is projected to reach 2.6 percent in 2023 and with global growth that is expected to hit 2.9 percent in 2024. These data indicate a slight improvement compared with the economic outlook released on November 22 when the organization projected that the global economy would grow 2.2 percent in 2023 and 2.7 percent in 2024. 

During the presentation of the Interim Economic Outlook for the Group of 20 (G20) economies made by the Secretary General Mathias Cormann, three major aspects have emerged as the reason for an upward adjustment of the world economic growth forecasts.

Firstly, an improved business and consumer confidence. The consumer confidence index (CCI), established in the United States in 1967, has been used by the OECD not only as an indicator of how much households can spend in the future but also as a measure of their ability to accumulate savings.

Current CCI data show a rapidly approaching value of 100 that leads to an optimistic attitude towards future developments in the economy with a tendency to save less and consume more. The business confidence index (BCI), an indicator used to monitor output growth and to anticipate turning points in economic activity, is also approaching to a value of 100 and this is evidence of an increased level of confidence in near future business performance.

As consumers and businesses slowly regain confidence in the market environment as a result of the response of government and countries to the effects of the pandemic, it is expected that a gradual return to normality is just around the corner. The realization of this goal will depend on the implementation at national level of well-designed measures that reduce inflation pressures through monetary policies and ensure prudent and targeted support through fiscal policies.

A general view of the Jodd Fairs night market in Bangkok, Thailand, March 17, 2023. /CFP
A general view of the Jodd Fairs night market in Bangkok, Thailand, March 17, 2023. /CFP

A general view of the Jodd Fairs night market in Bangkok, Thailand, March 17, 2023. /CFP

Secondly, a declining trend in food and energy prices. The G20 economies' headline inflation, which is the total inflation in an economy and is represented by a basket of goods that includes commodities like food and energy, is projected to decrease from 8.1 percent in 2022 to 5.9 percent in 2023 and 4.5 percent in 2024.

Despite a declining level of inflation represents good news for markets, as it is reflected in an increase in purchasing power for most businesses and households, it remains well above the 2 percent target set by Central Banks as a safety margin against the risk of deflation.

In this context, it is highly expected that Central Banks around the world will proceed with an increase in interest rates in sync to mitigate the effects of inflation as stability in prices represents a key prerequisite for maintaining a sustained level of economic growth.

Lastly, the reopening of the Chinese economy. China's decision to ease anti-COVID measures and to reopen its borders with the rest of the world in early January is having important implication for global recovery as the Chinese economy, the world's second largest, is seen growing 5.3 percent this year and 4.9 percent in 2024, up from November forecasts for 4.6 percent and 4.1 percent, respectively.

A fully reopened Chinese economy will be a driver in short to medium-term economic growth as it is conducive to an ease in global supply chain bottlenecks, which are the reason for high inflation among traded goods. As China's policies priorities economic growth, the likely scenario is of substantial economic activity, more investment opportunities, and increase in global demand.

All things considered, the outcome from the OECD's latest Interim Economic Outlook shows that, despite the persistence of elements of vulnerability, a combination of increased market optimism, positive macroeconomic factors, and the reopening of the Chinese economy are elements that offer a beacon of hope for a global economy that is seeking sustainable growth.

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