Monetary policy needs to remain prudent to ensure that underlying inflationary pressures are durably contained. Scope exists to start lowering nominal policy rates provided inflation continues to ease, but the policy stance should remain restrictive for some time to come. The pace and scale of policy rate reductions will be data dependent and may vary across countries depending on economic conditions.
Economic policy
Economic policy encompasses a broad range of strategies employed by governments to optimise economic performance. It includes areas such as fiscal policy, which deals with government spending and revenues; monetary policy, focused on controlling the money supply and interest rates; structural reform, aimed at enhancing long-term economic efficiency and competitiveness; and regulatory reform, which focuses on updating and streamlining economic regulations.
An unfolding recovery
The ratio of government debt to GDP is projected to rise further in many countries. Governments face mounting fiscal challenges from rising debt service costs and sizeable additional spending pressures from ageing populations, climate change mitigation and adaptation, defence and the need to finance new reforms. Without action, future debt burdens will rise significantly. Stronger near-term efforts to contain spending growth, reforms to enhance revenues, and early establishment of credible medium-term spending and tax plans tailored to country-specific developments are necessary.
Prospects for long-term growth and improvements in living standards appear modest. Stronger policy action is required to boost investment and enhance skills development and intensify innovation, to drive technological progress and productivity growth and boost employment. Innovation is crucial for a successful and cost-effective climate transition. While the majority of research efforts are undertaken in the private sector, government policies can and should continue helping foster innovation. Well-designed public support for R&D – both for basic government-funded research as well as through direct grants to businesses or R&D tax incentives – should aim to complement private investment, with rigorous evaluation of public efforts built into national investment strategies.
Context
Global activity has proved surprisingly resilient so far
Global growth in 2023 continued at an annual rate above 3%, despite the drag exerted by tighter financial conditions and other adverse factors, including Russia's war of aggression against Ukraine and the evolving conflict in the Middle East. Global GDP growth is projected at 3.1% in 2024 and 3.2% in 2025, little changed from the 3.1% in 2023. This is weaker than seen in the decade before the global financial crisis, but close to currently estimated potential growth rates in both advanced and emerging market economies.
Inflation has been falling towards targets, but some pressures persist
Headline inflation fell rapidly in most economies during 2023, driven down by restrictive monetary policy settings, lower energy prices and continued easing of supply chain pressures. Food price inflation also came down sharply in most countries, as good harvests for key crops such as wheat and corn saw prices fall rapidly from highs reached after the start of the war in Ukraine. Core goods price inflation has generally fallen steadily, but services price inflation has been stickier, remaining well above pre-pandemic averages in most countries.
Latest data from the OECD Economic Outlook
Country snapshots
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