Global outlook raised; Middle East risk tagged

The Organization for Economic Cooperation and Development (OECD) raised its 2024 world economic growth forecast Monday but warned that the Middle East conflict posed a risk, with disruptions in Red Sea shipping threatening to increase consumer prices.

The OECD now expects a 2.9 percent expansion, up from 2.7 percent in its previous forecast in November, as it sharply lifted the outlook for the United States, the world’s top economy.

Global growth “proved unexpectedly resilient” in 2023, reaching 3.1 percent as inflation declined faster than anticipated, with strong growth in the United States and emerging markets offsetting slowdowns in European nations.

But indicators suggest “some moderation” of growth, with higher interest rates affecting the credit and housing markets while global trade remains subdued, the OECD said.

While inflation is falling in major economies, “it is too soon to be sure that underlying price pressures are fully contained,” the OECD added in an update to its annual economic outlook.

The OECD highlighted the threats from the war between Israel and Hamas in Gaza and the attacks on ships in the Red Sea by Yemeni rebels who say they were targeting Israel-linked ships in solidarity with the Palestinians.

US and UK forces have responded with strikes against the Houthi rebels, who have since declared American and British interests to be legitimate targets as well.

“High geopolitical tensions are a significant near-term risk to activity and inflation, particularly if the conflict in the Middle East were to disrupt energy markets,” the report said.

“A widening or escalation of the conflict could disrupt shipping more extensively than presently expected, intensify supply bottlenecks, and push up energy prices if traffic is interrupted in the key routes for the transport of oil and gas from the Middle East to Asia, Europe and the Americas.”

Around 15 percent of global maritime trade volume passed through the Red Sea in 2022, according to the OECD.

The attacks have sharply raised shipping costs and lengthened delivery times of goods as companies have rerouted their vessels around the southern tip of Africa, increasing their journey by as much as 50 percent, it said.

Production schedules have been disrupted in Europe, notably for automakers, the report said.

The recent 100-percent increase in shipping costs, if persistent, could add 0.4 percentage points to consumer price inflation after about a year, the OECD warned.