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Global inflation is starting to cool after aggressive campaigns by central banks to bring high prices under control, a forecast by the Organization for Economic Cooperation and Development (O.E.C.D.) has stated. The economic outlook is also brightening after a turbulent period, with inflation expected to fall to 4.8 percent this year and 3.5 percent in 2025 among O.E.C.D. member countries. The decline in inflation has been attributed to high interest rates, although there is still a risk that inflation may stay higher for longer than expected. Despite this, the economic outlook is becoming more balanced, with the global economy proving resilient and risks to growth and inflation becoming more evenly spread.

The rebound in the global economy is happening at an uneven pace, with geopolitical tensions posing a major risk to growth and inflation, especially if conflicts in the Middle East and attacks in critical shipping zones were to escalate. The O.E.C.D. warned that uncertainty remains, even as inflation is being brought under control. The United States is expected to remain an engine of global growth this year, expanding at a 2.6 percent pace, but cooling to 1.8 percent growth next year as businesses and households adjust to high borrowing costs. Europe, on the other hand, is experiencing a lag in growth due to soaring energy prices and a cost of living crisis, with both the euro currency bloc and Britain facing recessions at the end of 2023.

Germany, in particular, has been hit hard by the energy shock, but there is hope for improvement next year as high interest rates come down, leading to increased spending by businesses and households. The O.E.C.D. forecast the eurozone economy to expand at 1.5 percent in 2025, more than double the expected growth rate this year. However, Britain’s growth is expected to remain sluggish at 0.4 percent in 2024 before improving to just 1 percent in 2025 due to high interest rates, making it the weakest economy among the Group of 7 nations. In China, a boom in exports has powered the manufacturing sector, offsetting a slump in the housing market, with the government deploying stimulus spending in response to the crisis.

There are risks on the horizon, with the potential for interest rates in major economies to remain high if inflation does not cool as expected. This could lead to new financial vulnerabilities, especially in emerging countries facing substantial debt in the coming years. The O.E.C.D. urged governments to better manage the worldwide increase in debt, especially in countries facing additional spending pressures from aging populations. Despite the improving economic outlook and decline in inflation, there are challenges ahead that must be navigated to ensure sustained growth and stability in the global economy.

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