The Global Economic Recovery with Its Ups and Downs

In its semi-annual Economic Outlook Interim Report, the Organisation for Economic Co-operation and Development (OECD) presented a comprehensive assessment of the global economy in September. This organisation, consisting mainly of industrialised and emerging economies, uses economic activity indicators to analyse current trends, risks, and forecasts. It remains fairly optimistic about the future, as the world is beginning to leave behind the acute impacts of the pandemic, inflationary shocks, and geopolitical tensions. Overall, the global economy has proven to be more resilient than initially thought.

The OECD was able to raise its figures compared to February 2024. While it was previously expected that the global economy would grow by 3 percent in 2024, the new estimate is 3.2 percent. Inflation is also approaching its target levels faster than expected. Next year, it is expected to reach 3.3 percent, down from the 3.8 percent forecast in February. This means that four out of five OECD countries are on track to meet their inflation targets after the wild price rallies of recent years. The Eurozone, and particularly its strongest economy, Germany, is stagnating at 0.7 percent. On the other hand, the USA is performing better than expected.

Asian emerging markets are driving the global economy the most. India, in particular, is becoming a locomotive, but populous Indonesia also contributes significantly. Remarkably, Russia, despite its wartime economy, is performing better than expected, with a growth rate of 3.7 percent—up from the 1.8 percent forecast in February. However, this strong economic growth is expected to slow next year. Even China, despite its economic struggles, improved its forecast from 4.7 to 4.9 percent.

A Resilient Global Market Adjusts to Price Shocks

The OECD has improved the outlook for the global economy. Despite ongoing global uncertainties, emerging markets are becoming the driving force.

In 2024, global economic growth turned out to be surprisingly robust for the OECD. Many of the bleak forecasts from previous years, shaped by the pandemic and global shocks that disrupted world market prices, have not materialised. Despite ongoing geopolitical tensions, such as the war in Ukraine and conflicts in the Middle East, global economic output has grown steadily. Inflation, which hit the world hard in 2022 and 2023, is beginning to stabilise at its target levels. Energy prices are falling again, and there is also relief in global supply chains. Major economies around the world managed to control runaway inflation through high interest rates, which reduced demand.

The OECD expects global economic growth to be slightly above 3 percent in both 2024 and 2025. While it is a slow recovery from recent crises, it is progressing steadily. According to the OECD, this is due to several factors. Real wage growth in households is boosting consumption, although purchasing power in many countries has not yet returned to pre-pandemic levels. In particular, inflation in the services sector remains high.

Global trade continues to grow steadily, although shipping costs remain elevated. Export orders are declining, which could signal a worsening situation in the future. Nevertheless, global trade volumes for both goods and services are recovering, with important emerging markets such as Brazil, China, and India showing unexpectedly strong performance.

The Role of Developing and Emerging Economies

Emerging and developing countries played a crucial role in maintaining the global economy. In the face of numerous shocks that sent ripples across the globe, they proved they had developed remarkable resilience in recent years. Countries with large populations, such as India, Indonesia, and Brazil, drove growth. Their immense domestic demand, rising incomes, and stable inflation rates supported the rest of the global economy.

India: An Emerging Global Power

India is currently the standout performer among emerging markets. With projected growth of 6.7 percent in 2024 and 6.8 percent in 2025, the world’s largest democracy is benefiting from a growing middle class and a young workforce. India's boom is driven by private consumption. In addition, government measures are supporting citizens by improving income and employment opportunities, particularly in rural areas. The country is also benefiting from far-reaching structural reforms that improve the business climate, promote innovation, and attract foreign direct investment.

Commitment to technological progress is a key factor in India’s growth. The country is investing heavily in digital infrastructure to transform sectors ranging from agriculture to finance. Government promotion of the digital economy has given millions of citizens access to financial services for the first time. This has boosted both private consumption and entrepreneurship. In addition, India is rapidly becoming a hub for tech startups and IT services, with cities like Bengaluru and Hyderabad leading the way.

However, the downsides of this rapid growth are taking their toll: inequality, continued infrastructure deficits, and strain on the ecological foundations of India's population. As a democracy, the fair distribution of the growing economic pie remains a top priority. India is becoming increasingly vulnerable to the consequences of climate change: droughts, floods, and other unpredictable natural disasters threaten infrastructure and the agricultural sector.

Brazil: Growing Domestic Demand

Brazil's economy is also performing better than expected, with projected growth of 2.9 percent in 2024 and 2.6 percent in 2025. Like India, Brazil’s growth is driven by strong domestic demand, with the services sector playing a significant role. The population is benefiting from increased government spending, which has helped mitigate global uncertainties. Brazil has a large and diversified economy. A dynamic services sector, ranging from tourism to IT, education, logistics, and transport, provides many Brazilians with stable incomes during turbulent times. Additionally, a vital industrial sector, from automotive manufacturing to chemicals and food processing, supports the economy. The strong agricultural sector, which exports soybeans, coffee, and beef, has contributed to the economic recovery despite volatile commodity prices.

However, Brazil faces challenges, particularly in terms of its historically high inflation rate. Due to a devaluation of the real, inflation is expected to reach 4.4 percent in 2024, higher than originally forecast, and will remain elevated next year. Brazil’s high public debt is also a concern. So far, the country has made only slow progress in reforming pensions, tax collection, and public spending. Without greater fiscal discipline, Brazil may struggle to sustain long-term growth. Market liberalisation will also be crucial in improving the business climate.

Indonesia: Stable Growth Despite Global Uncertainties

Indonesia, with 275 million inhabitants, is Southeast Asia’s largest economy, yet it receives little media attention. The country is showing stable growth rates of 5.1 percent in 2024 and 5.2 percent in 2025. Like India, Indonesia's growth is driven by domestic consumption, supported by a growing middle class and rising incomes. Indonesia benefits from its strategic location between the Indian and Pacific Oceans and its abundant natural resources, making it a key player in global trade for energy, mining, and agriculture.

In recent years, Indonesia has made significant progress in improving its transport and energy infrastructure, making its numerous islands an attractive destination for investment. The government’s commitment to infrastructure is evident in its ambitious plan to build a new capital, Nusantara, to ease the burden on Jakarta and promote more balanced regional development.

Indonesia's outlook is similar to India's. However, the country also faces other challenges. Its reliance on commodity exports makes Indonesia vulnerable to global financial market fluctuations. Despite these exports, Indonesia suffers from a current account deficit and is dependent on external financing, making the island nation susceptible to capital outflows during economically uncertain times. Indonesia also faces environmental challenges due to its rapid development, such as deforestation and pollution, which threaten the sustainability of its economic success.

China: The Challenges of Slower Growth

China was long the growth star among emerging markets and has risen to become the world’s second-largest economy. Although the country is still growing, at 4.9 percent in 2024, it is doing so at a much slower pace than in the past. Growth is expected to slow further to 4.5 percent in 2025. This is new for the success-spoiled Chinese. Like other countries, the Chinese economy is in transition. In addition to digitisation and environmental reforms, China must move away from its heavy reliance on exports and foreign investment towards an economy that is more dependent on domestic consumption and an expanding services sector.

One key factor in China’s faltering economy is the ongoing correction in the real estate sector, which has long been a major driver of economic activity. The downturn in the property market and subdued consumer demand are weighing on China’s growth. In the long term, the country also faces challenges from an ageing population, persistent environmental destruction by industry, and rising debt levels. The government is trying to stabilise growth through measures such as fiscal stimulus and loose monetary policy.

Nonetheless, China remains a central player in the global economy. The country's industrial production continues to expand, and its export sector is performing well. China is making significant progress in high-tech sectors such as artificial intelligence, renewable energy, and electric vehicles, without relying on foreign expertise.

Mexico and Argentina: Struggling with Domestic Challenges

However, some emerging markets are still struggling with the aftermath of past crises, with recovery still on the horizon. Mexico and Argentina are prime examples. In Mexico, the challenges lie in domestic demand, but for different reasons. Unlike China, India, and Indonesia, Mexico’s domestic demand is shrinking. With a growth rate of 1.4 percent in 2024 and 1.2 percent in 2025, the country is an outlier. Inflation remains high, and the services sector is losing momentum.

The situation is even more difficult in Argentina, where controversial President Javier Milei has launched sweeping reforms after the country suffered from record inflation. In 2024, inflation is still expected to be over 147 percent, as the country continues to struggle with currency devaluation, high debt levels, and political instability. As a result, GDP is expected to shrink by 4 percent. This trend is not expected to reverse until next year. Milei’s government faces the daunting task of stabilising the economy, reducing inflation, and restoring investor confidence.

What Could Still Derail the Global Economy?

The OECD highlights several risks that could threaten its positive forecast for the global economy. Ongoing geopolitical tensions, beginning with the continuing war in Ukraine and instability in the Middle East between Israel and its neighbours, pose significant risks to global trade and investment security in many parts of the world. A simmering trade conflict between China and the US could disrupt global supply chains and drive up import prices for virtually everything.

The OECD’s good news is that the positive development of emerging markets is largely driven by the rising wealth of a growing middle class, whose ability to consume is increasing. However, signs are emerging that labour markets are cooling faster than expected. In many advanced economies, such as the US and the Eurozone, this is already happening, and emerging markets could follow suit. With declining wage growth and rising unemployment, consumption could be significantly dampened, weakening economic growth—the pillar of all the countries discussed.

Moreover, financial markets are fluctuating wildly in all directions. This volatility could lead to disruptions in financial markets and shake expectations of a sustained decline in inflation. This could cause significant turmoil, especially in emerging markets. Both advanced and emerging economies have accumulated high levels of debt in recent years, increasing the risk of financial instability and debt crises in the near future.

Nevertheless, the OECD emphasises the need for cautious but decisive policy action to navigate the uncertain global environment. Declining inflation gives central banks room to lower interest rates and stimulate investment. However, this must be carefully timed to ensure inflation does not flare up again. Monetary policy should, therefore, be strictly data-driven and not influenced by political demands. On the other hand, governments should move out of crisis mode and regain control of their public spending.