The OECD has called on central banks to continue raising rates in a bid to lower inflation in the medium- to long-term. In its updated economic outlook, the organisation forecast global growth to reach 2.6% in 2023 and 2.9% in 2024 amid improved business and consumer confidence, the decline of food and energy prices and the re-opening of the Chinese economy. But it warned monetary policy "needs to stay the course", at least until there are clear signs that "underlying inflationary pressures are lowered durably".The OECD expects headline inflation to gradually come down throughout 2023 in most G20 countries - from 8.1% in 2022 to 5.9% in 2023 and 4.5% in 2024. The reduction will be possible thanks to "tighter monetary policy taking effect", the organisation said, alongside energy prices easing after a "mild winter" in Europe and global food prices declining. "However, core inflation remains persistent, held up by strong service price increases and cost pressures from tight labour markets." This probably means that central banks will have to maintain high policy rates "well into 2024", it added.OECD secretary-general Mathias Corman said despite the updated outlook being slightly more optimistic than previous ones, the global economy remains fragile. "Some key risks, such as persistent large-scale energy and food market disruptions have been mitigated for now, however Russia's war of aggression against Ukraine, persistence in services inflation, financial market turbulence and the steady decline in underlying growth prospects could be sources of further disruption," he said. "More targeted fiscal support and structural reforms to revive productivity growth will be key to optimising the recovery and long-term growth prospects." But the OECD warned fiscal support should be prudent and focused on those most in need, as better targeting and a timely reduction in overall support "would help to ensure fiscal stability, preserve incentives to lower energy use and limit additional demand stimulus at a time of high inflation".
