The Organisation for Economic Co-operation and Development (OECD) raised its global economic growth forecast on Friday as inflation eases and China emerges from COVID restrictions, but warned of vulnerabilities as seen in the US bank sector turmoil.
The OECD said it now expects the global economy to grow by 2.6% this year compared to 2.2% in its previous forecast in November.
But it remains under the 3.2% expansion seen in 2022, the Paris-based OECD said in its updated economic outlook titled “A Fragile Recovery”.
“More positive signs have now started to appear, with business and consumer sentiment starting to improve, food and energy prices falling back, and the full reopening of China,” the OECD said in its Interim Economic Outlook report.
But it warned that “the improvement in the outlook is still fragile. Risks have become somewhat better balanced, but remain tilted to the downside”.
It cited uncertainty over the course of the war in Ukraine, the risk of renewed pressure on energy markets and the impact of rising interest rates.
Central banks worldwide have hiked rates in efforts to tame decades-high inflation, but markets fear that the rising borrowing costs could tip economies into recession.
“Signs of the impact of tighter monetary policy have started to appear in parts of the banking sector, including regional banks in the United States,” it said.
“Higher interest rates could also have stronger effects on economic growth than expected, particularly if they expose underlying financial vulnerabilities.”
The monetary tightening has been linked to the collapse of Silicon Valley Bank last week after it booked a $1.8 billion loss on bonds whose prices were brought down by the higher rates.