PARIS – Global inflation is starting to cool after aggressive campaigns by central banks to bring high prices under control, and the economic outlook is brightening after a turbulent period, but clouds loom over the recovery, according to a forecast released on May 2.

The rebound is unfolding at an uneven speed around the world, and geopolitical tensions could pose a major risk to growth and inflation – especially if the conflict in the Middle East and attacks in the Red Sea, a critical shipping zone for trade, were to widen, the Organisation for Economic Cooperation and Development (OECD), a think-tank in Paris, said in its latest economic survey.

“The global economy has proved resilient, inflation has declined within sight of central bank targets and risks to the outlook are becoming more balanced,” OECD secretary-general Mathias Cormann said during a news conference on May 2 in Paris. “But uncertainty remains.”

Inflation among the 38 OECD member countries is expected to fall to 4.8 per cent in 2024 and 3.5 per cent in 2025, after hitting 9.4 per cent in 2022, when Russia’s invasion of Ukraine helped set off an energy crisis.

Inflation in the United States and in the euro area is expected to fall in 2024 and 2025 towards a 2 per cent target that policymakers say is essential for maintaining the stability of prices.

“We’ve been through an inflation shock of a generation,” the organisation’s chief economist, Ms Clare Lombardelli, said during the briefing. The biggest price increases have been for essential items like food and energy, she said, adding: “Those on the lowest incomes have been squeezed.”

High interest rates have helped bring prices down, but there is still a risk that inflation may stay higher for longer than expected, Ms Lombardelli said.

In the US, the Federal Reserve left interest rates steady on May 1, citing wariness about how stubborn inflation was proving. Even so, the US is expected to remain an engine of global growth in 2024, expanding at a 2.6 per cent pace, the OECD forecast. But the economy will start to cool in 2025, slowing to 1.8 per cent growth, as businesses and households adapt to high borrowing costs and begin to curb spending, the report said.

Europe is badly lagging by comparison, as soaring energy prices curbed manufacturing and a cost of living crisis kept consumers from spending. Both the euro currency bloc and Britain ended 2023 in recession, deepened by record high interest rates deployed by the European Central Bank and the Bank of England to help fight inflation.

Germany was hit especially hard by the energy shock, although the downturn in the euro zone was offset to some extent by stronger growth in southern European countries such as Greece and Spain.

The outlook should improve in 2025, as high interest rates come down, unleashing more spending by businesses and households. The OECD forecast that the euro zone economy will expand 1.5 per cent in 2025, more than double the expected growth rate in 2024.

In Britain, however, growth will remain sluggish at 0.4 per cent in 2024 before improving to just 1 per cent in 2025 as interest rates there remain high, making it the weakest economy among the Group of Seven nations.

In China, a boom in exports, from solar panels to electric vehicles, has powered the manufacturing sector and is helping to offset a devastating slump in the housing market, which makes up about a quarter of the economy. A fast-unfolding real estate crisis has sapped the wealth of millions of Chinese people and has not touched bottom, leading the government to deploy stimulus spending. China’s growth is expected to slow moderately, to 4.9 per cent in 2024 and 4.5 per cent in 2025, the OECD said.

The organisation pointed to other risks, including the possibility that interest rates in the biggest economies may need to stay high if inflation does not cool as much as expected. That could give rise to new financial vulnerabilities, especially in emerging countries where large amounts of debt coming due in the next three years might have to be rolled over at higher costs.

Against an uncertain backdrop, the organisation admonished governments to do a better job of managing a general worldwide increase in debt – a problem that is expected to worsen, especially in countries that will soon face additional spending pressures from ageing populations. NYTIMES