Is the United States driving global growth or acting as a "drag"? OECD raises this year's global growth forecast, while lowering next year's US economic outlook

In 2025, the US economy slowing down has become the "drag" on global growth?

On Wednesday, the Organisation for Economic Co-operation and Development (OECD) downgraded its US economic growth forecast by 20%, expecting the US economy to slow to 1.6% next year as the Federal Reserve cuts interest rates.

At the same time, the OECD predicts global economic growth rates of 3.2% in 2024 and 2025, a 10% increase from last year, mainly due to improved expectations for Saudi Arabia, Russia, Brazil, and the UK economy.

The OECD stated that major economies have already "reversed the situation" in dealing with inflation, and the positive economic expectations for next year will create room for central banks to continue cutting interest rates, but the timing and pace of rate cuts need to be "carefully assessed." It also urged governments to control fiscal spending, increase tax revenues, and rebuild fiscal buffers.

OECD: Economic recovery requires structural reforms, inflation risks persist

Álvaro Pereira, Chief Economist of the OECD, stated that during the global economic recovery, governments need to find a balance between maintaining fiscal discipline and stimulating economic growth.

"We advocate fiscal discipline, not austerity."

The OECD believes that many countries need to reform pension systems and broader welfare systems, increase revenue through indirect taxes and property taxes, and eliminate tax exemptions.

However, Pereira warned that although inflation has eased somewhat, it has not completely disappeared and still poses certain risks. In many countries, service price inflation still needs to drop by 1 percentage point or more to bring core inflation back to levels consistent with central bank targets.

He added that in countries where wages have not caught up with food prices, there is a "disconnect" between policy direction and people's daily experiences. "People still feel tight when they go to the supermarket."

Meanwhile, the relative dependence on global growth masks significant differences across the Atlantic. Specifically, the US economy is expected to grow by 2.6% in 2024 and 1.6% in 2025, while the Eurozone is forecast to grow by only 0.7% this year and 1.3% in 2025.

Pereira stated that one way to boost long-term growth is to break down barriers to competition in the service sector, especially in regulated industries and in energy, telecommunications, and transportation.

The OECD also pointed out that geopolitical and trade tensions pose a threat to investment and could push up import prices. With the labor market cooling down, economic growth may slow, and if deflation exceeds expectations, financial markets may be disrupted.

French debt crisis sparks market concerns

Pereira stated: "In recent years, fiscal issues have not received enough attention."

He pointed out that with increasing pressures such as aging populations, climate change, rising defense spending, and growing debt burdens, "the earlier fiscal discipline is restored, the better." Some analysts believe that Pereira's remarks seem to imply the fiscal deficit pressure France is currently facing Recently, the debt crisis in France has raised concerns in the market, with the 10-year government bond yield of France now on par with that of Spain. The Governor of the Bank of France even stated that it is "unrealistic" to keep the deficit within the EU-mandated 3% in the next three years.

According to the Financial Times, French Finance Minister Antoine Armand stated on Tuesday that the government is considering taxing the wealthy and businesses to address "one of the most serious deficits in our history."

Pereira declined to comment on the situation in France but mentioned that the high debt levels in certain countries "definitely could" lead to market turmoil