How long will the world economy hold out?
When the Organisation for Economic Co-operation and Development presented its Interim Economic Outlook in Paris on 23 September, the conclusion sounded almost encouraging. The world economy, which grew by 3.4 per cent last year, should see growth of 2.9 per cent this year, which is 0.1 percentage points more than the estimate in June. At the same time, the OECD cut its forecast for 2027 to 3 per cent. So this amounts to a slowdown, but it does not amount to the crisis that many expected after the outbreak of the war with Iran.
The OECD sees the explanation for this resilience in several factors that were at work simultaneously. Governments shielded households and businesses from the high cost of energy with extensive measures. Producers outside the Gulf increased the supply of oil and gas, and the drawdown of strategic reserves softened the heaviest blow. And no less important was the boom in artificial intelligence, which boosted investment, production and trade.
The picture by country is nevertheless uneven. Growth of 2.2 per cent is forecast for the US, while China, at 4.5 per cent, continues to grow the fastest among the major economies. The euro area, whose forecast was raised by 0.2 percentage points, should grow by a modest one per cent. The surprise of the year is Germany, whose forecast was raised from 0.7 to 1.1 per cent, as demand for electronics, driven by the boom in artificial intelligence, unexpectedly boosted its exports. Public investment in defence and infrastructure also adds to this. Italy too is doing better than expected, with its forecast raised from 0.5 to 0.9 per cent. Spain, with growth of 2.6 per cent, remains one of the most dynamic European economies, while the forecast for France was cut to just 0.4 per cent.
Behind the relatively good figures on growth, however, lies a problem that will not go away quickly. Inflation in the countries of the G20 should reach 4.1 per cent this year, which is more than the 3.4 per cent it stood at last year. And even in the euro area, where growth is modest, inflation of around 3 per cent is expected. In Spain it could reach 3.7 per cent, which shows that fast growth also has its price. Secretary-General Mathias Cormann, who presented the report together with Chief Economist Stefano Scarpetta, therefore warned that the cushions that had absorbed the shock so far are running out gradually.
How long this resilience will last depends above all on the Middle East. If the war drags on and exports of energy from the region remain disrupted, the pressure on prices could intensify again. The OECD also lists the risks from an exceptionally strong El Niño as well as from a further rise in the yields on long-term government bonds.
The trickiest question, however, relates to the very engine of the growth seen so far. If the huge investments in artificial intelligence do not bring the expected returns, the very forces that held up the economy this year could weaken. In other words, the resilience of the world economy for now rests on fragile foundations.