In the past few years, the global economy has demonstrated remarkable resilience despite being subject to major shocks such as the pandemic and an energy crisis. This year, global growth has remained stable, while inflation continued to decline. Despite some easing in labour markets, unemployment rates are still near historical lows in many countries. Global trade has also been recovering.
We project that this resilience will continue, with global GDP increasing by 3.3% in 2025 and 2026, and inflation falling towards central bank targets. However, this robust overall performance masks significant differences across regions and countries, and is surrounded by important downside risks and uncertainties. More specifically, there are increasing risks related to rising trade tensions and protectionism, a possible escalation of geopolitical conflicts, and challenging fiscal policies in some countries.
Trade has been an important engine of global growth, job creation and declining poverty in the past decades. Not everything worked perfectly, and trade benefits were not always equally shared. Still, rising trade tensions and further moves towards protectionism might disrupt supply chains, raise consumer prices, and negatively impact growth. Similarly, an escalation of geopolitical tensions and conflicts risks disrupting trade and energy markets, potentially fuelling rises in energy prices.
Another source of risk comes from the public finances, as public debt remains at elevated levels. Some emerging market economies and low-income countries are now in debt distress or are at high risk of debt distress. Many other countries face mounting fiscal challenges and high debt. Increasing pressures from rising expenditures on defence, ageing populations, and the green and energy transition amplify these challenges. As a result, fiscal positions are strained and may jeopardise governments’ ability to respond to future crises.
Policy has a key role to play at the current juncture to manage risks and to unleash the prospects for stronger, resilient and sustainable growth. This requires concerted action on monetary, fiscal, and structural policies.
As inflation pressures decline further, central banks should continue to ease monetary policy. Still, central banks need to tread carefully, taking note of incoming data and thoroughly assessing policy actions. Failing to durably contain inflation would only increase the risks to growth and real incomes.
Governments need to establish credible strategies to rein in public finances. Fiscal prudence is pressing due to elevated public debt levels in many countries and rising spending pressures. The needs and means by which fiscal restraint is exercised differ in every country, but it will be key for governments to balance the reduction in fiscal pressures with the need to preserve economic growth.
In addition, efforts on structural reforms can help reinvigorate medium-term economic growth and overcome fiscal challenges. In this edition of the OECD Economic Outlook, our Special Chapter focuses on an important challenge that many economies are facing: pervasive labour shortages. Labour and skill shortages have been on the rise in the past decade and intensified during the pandemic. Although labour markets are now easing, shortages still affect many sectors of our economies, especially health and long-term care and information technology. Such shortages, particularly in technology-intensive activities, hinder business upscaling as well as firms’ ability to capitalise on productivity-enhancing innovations, such as artificial intelligence and robotics.
Significant public and private efforts to upskill and reskill workers, as well as reforms to education and lifelong learning systems, are essential to equip the labour force with the skills needed to address present and future challenges. Labour market policies can be used to boost labour supply and improve labour mobility. Fostering labour force participation among women, as well as among younger and older workers, will be essential to reduce labour shortages and boost potential growth. Promoting healthy ageing, improving working conditions, and investing in affordable childcare will be key to this end. Well-designed immigration policies, supported by robust integration measures, can also help ease labour shortages.
In sum, even though the global economy is expected to remain resilient, risks and uncertainties are high. In this challenging environment, decisive policy actions, including through bold structural reforms, and multilateral dialogue are essential to address these risks and to continue fostering a rise in growth and living standards across the globe.
4 December 2024
Álvaro Pereira
OECD Chief Economist