The Organization for Economic Cooperation and Development on Friday upgraded its global economic outlook, forecasting 2.6 percent growth in 2023, but noted the recovery remains fragile amid monetary tightening and uncertainty over Russia's war in Ukraine.
The previous estimate in November said the global economy will expand 2.2 percent this year. The Paris-based organization, meanwhile, cut its growth forecast for Japan to 1.4 percent from 1.8 percent, underscoring its relative weakness despite pent-up demand supporting the world's third-largest economy.
The 2023 forecasts for the United States and China were upgraded to 1.5 percent and 5.3 percent, respectively, compared with 0.5 percent and 4.6 percent as of November. The eurozone economy is now projected to expand by 0.8 percent instead of the previous estimate of 0.5 percent.
The OECD's revised economic outlook report was released amid mounting concern over the banking sector in the United States and Europe following the collapse of two regional U.S. banks.
"The improvement in the outlook is still fragile. Risks have become somewhat better balanced, but remain tilted to the downside," the OECD said in the report.
Monetary policy needs to remain "restrictive" until clear signs emerge that underlying inflationary pressures are lowered durably, the group said, expecting inflation to likely be above central banks' objectives until the latter half of 2024.
"The strength of the impact from monetary policy changes is difficult to gauge and could continue to expose financial vulnerabilities from high debt and stretched asset valuations, and also in specific financial market segments," the report said.
Japan's headline inflation has remained above the Bank of Japan's 2 percent target in recent months, but the central bank is in no hurry to tighten its policy based on the assessment that the inflationary trend will not last long.
That stance has drawn a sharp contrast with its global peers. The European Central Bank on Thursday went ahead with another rate hike, and the U.S. Federal Reserve is scheduled to hold a policy meeting next week.