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Jeddah - Yasmine El Tohamy - RIYADH: The Organisation for Economic Co-operation and Development on Monday cautiously raised its forecast for world economic growth in 2024 amid threats of consumer price inflation due to the ongoing Middle East tensions.
Sharply lifting the outlook for the US, it now forecasts a 2.9 percent global growth, up from 2.7 percent in its previous estimate in November.
Global growth “proved unexpectedly resilient” in 2023, reaching 3.1 percent as inflation declined faster than anticipated, with strong growth in the US 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, according to an OECD report.
While inflation is falling in major economies, “it is too soon to be sure that underlying price pressures are fully contained,” it 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 Yemen’s Houthis.
“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 the 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 attacks on ships on the Red Sea are having an impact on trade. Freight rates have more than doubled since the end of last year,” OECD Chief Economist Clare Lombardelli said at a news conference.
The increase in shipping costs, if persistent, could add 0.4 percentage points to consumer price inflation after about a year, the OECD warned.
It said monetary policy needs to “remain prudent” to ensure that inflationary pressure is “durably contained.”
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