Question Period Note: OECD Economic Outlook – May 2024

The Organisation for Economic Co-operation and Development (OECD) has released its May 2024 Economic Outlook.

• The OECD expects global economic growth to remain modest this year and next, reflecting headwinds from high inflation and high interest rates – but notes the outlook is starting to brighten.
• Canada is not immune to these global challenges, but is faring better than most other G7 countries. The OECD expects Canada to have the second strongest economic growth in the G7 in 2024 and the strongest in 2025 (tied with the U.S.).
• The OECD expects Canada to maintain its fiscal advantage in the G7, with the lowest net debt and deficit as a share of the economy in 2024 and 2025.

• Global Outlook: The global economy continues to be more resilient than expected, despite tighter financial conditions, and conflicts in Ukraine and the Middle East. The OECD projects the global economy will expand by 3.1% in 2024 (0.2 p.p. above the February Interim Assessment), and 3.2% in 2025 (+0.2 p.p.). Emerging Asia continues to be the largest contributor to global growth over the projection horizon, while U.S. growth continues to surprise on the upside.
• Inflation Developments: Inflation is falling faster than expected. The OECD expects inflation to be back to target in most major economies by the end of 2025.
• Regional Outlook: For the U.S., growth is expected be 2.6% in 2024 (+0.5 p.p.), before easing further to 1.8% in 2025 (+0.1 p.p.). For China, the OECD projects real GDP growth of 4.9% in 2024 (+0.2 p.p.), and 4.5% in 2025 (+0.3 p.p.). In the euro area, GDP growth is expected to slow to 0.7% in 2024 (+0.1 p.p.), before rebounding to 1.5% in 2025 (+0.2 p.p.).
• Canadian Economic Outlook: The OECD expects growth in Canada to remain moderate at 1.0% in 2024 (+0.1 p.p. from February) and to strengthen to 1.8% in 2025 (-0.1 p.p.), reflecting strengthening global conditions, the boost to private spending and labour supply from immigration, and expected monetary policy easing. The OECD expects the Canadian economy to see the second fastest rate of growth among the G7 in 2024 and the fastest growth in 2025 (tied with the U.S.).
• Canadian Fiscal Outlook: Canada’s general government deficit is projected to widen slightly to 0.7% of GDP in 2024, still the lowest in the G7, before improving modestly to 0.6% in 2025. Canada achieved the fastest pace of deficit reduction in the G7 between 2020 and 2023. The OECD expects Canada’s net debt-to-GDP ratio [to edge up in 2024—as is the case for all G7 countries—and 2025]. Moreover, the OECD expects the ratio to remain by far the lowest among G7 countries.
• Risks: The OECD noted that risks to the outlook are becoming better balanced, but substantial uncertainty remains. Geopolitical risks remain elevated, and inflation may prove to be more persistent than projected.
• Policy Recommendations: The OECD emphasizes the importance of monetary policies that will ensure a durable reduction in inflation. Governments should establish a fiscal path to address debt sustainability, and undertake structural reforms to raise sustainable and inclusive growth. The OECD also notes the importance of multilateral cooperation for more resilient global values chains.

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