The global economy will continue to grow at a modest pace in 2024 and 2025, according to the Organisation for Economic Co-operation and Development (OECD).

The OECD’s latest Economic Outlook projected global GDP growth of 3.1 per cent in 2024, the same level as in 2023, followed by a slight improvement to 3.2 per cent in 2025.

It stated that the impact of tight monetary conditions continued to be felt, particularly in housing and credit markets, but inflation was continuing to decline, private sector confidence was improving, and global activity was proving relatively resilient.

However, the outlook differed across countries, with weaker outlooks in several advanced economies, especially in Europe.

Euro area GDP growth was projected at 0.7 per cent in 2024 and 1.5 per cent in 2025.

Headline inflation in the OECD was forecast to gradually decline from 6.9 per cent in 2023 to 5 per cent in 2024 and 3.4 per cent in 2025, aided by tight monetary policy, and easing goods and energy price pressures.

However, “significant uncertainty” remains, the OECD warned, stating that inflation may stay higher for longer, resulting in slower-than-expected reductions in policy interest rates and further financial vulnerabilities.

Furthermore, high geopolitical tensions remained a significant near-term risk to activity and inflation.

On the other hand, demand growth could prove stronger than expected if households and firms were to draw more fully on the savings accumulated during the Covid-19 pandemic.

The OECD outlined a series of policy recommendations, highlighting the need to ensure a durable reduction in inflation, establish a budgetary path that will address rising fiscal pressures and undertake reforms that improve prospects for medium-term growth.

It stated that monetary policy needs to remain prudent, to ensure that inflationary pressures are durably contained, while scope exists to lower policy interest rates as inflation declines, but the policy stance should “remain restrictive in most major economies for some time to come”.

Commenting on the outlook, OECD secretary general, Mathias Cormann, said: “The global economy has proved resilient, inflation has declined within sight of central bank targets, and risks to the outlook are becoming more balanced. We expect steady global growth for 2024 and 2025, though growth is projected to remain below its longer-run average.

“Policy action needs to ensure macroeconomic stability and improve medium-term growth prospects. Monetary policy should remain prudent, with scope to lower policy interest rates as inflation declines, fiscal policy needs to address rising pressures to debt sustainability, and policy reforms should boost innovation, investment and opportunities in the labour market particularly for women, young people and older workers.”

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