Economics
UK to suffer slowest growth of all rich nations next year, OECD says
People walk in the rain over London Bridge in central London. Picture date: Tuesday March 12, 2024.
Lucy North – Pa Images | Pa Images | Getty Images
The U.K.’s “sluggish” growth prospects have put it on course to be the worst-performing economy of all advanced nations next year, according to new forecasts from the Organization for Economic Cooperation and Development.
U.K. gross domestic product is expected to grow 0.4% in 2024, the Paris-based think tank said Thursday in its latest global economic outlook. That figure is down from a previous prediction of 0.7% and less than all other G7 countries besides Germany, which is expected to be 0.2%.
The British economy is then forecast to expand by 1% in 2025, behind Canada, France, Germany, Japan and the U.S. as the lingering effects of high interest rates and inflation continue to weigh.
The downbeat prediction comes as the global economy shows signs of recovery, with growth forecast to remain steady at 3.1% in 2024 before rising modestly to 3.2% in 2025.
“We start seeing some recovery in many parts of the world,” Alvaro Pereira, director of the OECD’s policy studies branch, told CNBC’s Silvia Amaro Thursday.
Growth among advanced nations next year is set to be led by North America, which Pereira said follows “strong growth” forecasts of 2.6% in the U.S. in 2024. Growth in Europe, meanwhile, is expected to pick up next year after a sluggish 2024.
Among emerging economies, the OECD said there were also signs of strength. In China, where the economy has struggled in part due to a protracted downturn in the property market, growth projections were revised upward slightly from earlier forecasts, which Pereira said was due to “stronger performance than in the recent past.”
The OECD said the global outlook was an indication that central banks’ efforts to quell inflation were working.
“Monetary policy is doing what it should be doing,” Pereira said. “Real incomes are starting to recover. This will help consumption. We also think inflation is starting to come down.”
However, he added that questions remain over how robust the global recovery would be, particularly as central banks show signs of divergence on the future path of interest rates.
“The risk is obviously if inflation continues to be stickier than we expect, then obviously it’s possible that monetary policy will have to remain restrictive for a bit longer,” Pereira noted.
According to the OECD, headline inflation among its 38 member nations is expected to dip to 5% in 2024 from 6.9% in 2023, and then fall further to 3.4% in 2025. By the end of 2025, inflation is expected to return to targets of around 2% in most major economies, the OECD said.
The U.S. economy added fewer jobs than expected in April while the unemployment rate rose, lifting hopes that the Federal Reserve will be able to cut interest rates in the coming months.
Nonfarm payrolls increased by 175,000 on the month, below the 240,000 estimate from the Dow Jones consensus, the Labor Department’s Bureau of Labor Statistics reported Friday. The unemployment rate ticked higher to 3.9% against expectations it would hold steady at 3.8%.
Average hourly earnings rose 0.2% from the previous month and 3.9% from a year ago, both below consensus estimates and an encouraging sign for inflation.
The jobless rate tied for the highest level since January 2022. A more encompassing rate that includes discouraged workers and those holding part-time jobs for economic reasons also edged up, to 7.4%, its highest level since November 2021. The labor force participation rate, or those actively looking for work, was unchanged at 62.7%.
Wall Street already had been poised for a higher open, and futures tied to major stock market averages added to gains following the report. Treasury yields tumbled after being little changed before the release. The report raised the prospect of a “Goldilocks” climate where growth continues but not at such a rapid pace to force the Fed to tighten policy further.
“With this report, the porridge was just about right,” said Dan North, senior economist at Allianz Trade. “What would you like at this point the cycle? We’ve had interest rates jacked up pretty high, so you would expect to see the labor market slow down a little. But we’re still at pretty high levels.”
Consistent with recent trends, health care led job creation, with a 56,000 increase.
Other sectors showing significant rises included social assistance (31,000), transportation and warehousing (22,000), and retail (20,000). Construction added 9,000 positions while government, which had shown solid gains in recent months, was up just 8,000 after averaging 55,000 over the previous 12 months.
Revisions to previous months took the March gain to 315,000, or 12,000 from the initial estimate, and February to 236,000, a decline of 34,000.
Household employment, which is used to calculate the unemployment rate, increased by just 25,000 on the month. Workers holding full-time jobs soared by 949,000 on the month, while those hold part-time jobs slumped by 914,000.
The report comes two days after the Fed again voted to hold borrowing costs steady, keeping its benchmark overnight borrowing rate in a targeted range between 5.25%-5.5%, the highest in more than 20 years.
Following the decision, Chair Jerome Powell characterized the jobs market as “strong” but noted that inflation is “too high” and this year’s economic data has indicated “a lack of further progress” in getting inflation back to the Fed’s 2% target.
But market action shifted after the jobs report indicated an easing labor market and softer wage increases. Traders priced in a strong chance of two interest rate cuts by the end of 2024, with the first reduction expected to come in September, according to CME Group data.
“This is the jobs report the Fed would have scripted,” said Seema Shah, chief global strategist at Principal Asset Management. “The first downside payrolls surprise in several months, as well as the dip in average hourly earnings growth, will bring the rate cutting dialogue back into the market and perhaps explains why Powell was able to be dovish on Wednesday.”
Though inflation has come well off its highs in mid-2022, it is still considerably above the central bank’s comfort zone. Most reports this year have shown inflation around 3% annually; the Fed’s own preferred measure, the core personal consumption expenditures price index, most recently was at 2.8%.
Higher prices have been putting upward pressure on wages, part of an inflation picture that has kept the Fed on the sidelines despite widespread market expectations that the central bank would be cutting interest rates aggressively this year.
Most Fed officials in fact had been mentioning the likelihood of reductions in their public comments. However, Powell at his post-meeting news conference Wednesday made no mention of the likelihood that rates would be lowered at some point this year, as he had in the past.
The strong jobs market has been bolstered post-pandemic by strength in the immigrant workforce in America. And as Americans age out of the labor force and birth rates remain low, economists and the Federal Reserve are touting the importance of immigrant workers for overall future economic growth.
Immigrant workers made up 18.6% of the workforce last year, a new record, according to Bureau of Labor Statistics data. Workers are taking open positions in agriculture, technology and health care, fields where labor supply has been a challenge for those looking to hire.
Despite the U.S. adding fewer-than-expected jobs in April, the labor force participation rate for foreign-born workers ticked up slightly, to 66%.
“We don’t have enough workers participating in the labor force and our birth rate has dropped down 2% last year from 2022 to 2023. … These folks are not taking jobs. They are helping to bolster and helping us build back — they’re adding needed workers to the labor force,” said Jennie Murray, CEO of the National Immigration Forum, a nonpartisan nonprofit advocacy organization.
The influx of immigrant workers is also a projected boost to U.S. output, and is expected to grow gross domestic product over the next decade by $7 trillion, Congressional Budget Office Director Phillip Swagel noted in a February statement accompanying the 2024-2034 CBO outlook.
“The labor force in 2033 is larger by 5.2 million people, mostly because of higher net immigration. As a result of those changes in the labor force, we estimate that, from 2023 to 2034, GDP will be greater by about $7 trillion and revenues will be greater by about $1 trillion than they would have been otherwise. We are continuing to assess the implications of immigration for revenues and spending,” Swagel wrote.
‘Huge competition’
Goodwin Living, a nonprofit faith-based elder-care facility in Northern Virginia that cares for 2,500 adults day to day, is heavily reliant on immigrant workers. Some 40% of its 1,200 workers are foreign-born, representing 65 countries, according to CEO Rob Liebreich, and more workers will be needed to fill increasing gaps as Americans age and need assistance.
“About 70% of 65-year-olds are expected to need long-term care in the future. We need a lot of hands to support those needs,” Liebreich told CNBC. “Right now, one of the best ways that we see to find that is through people coming from other countries, our global talent, and there’s a huge competition for them.”
In 2018, Goodwin launched a citizenship program, which provides financial resources, mentorship and tutoring for workers looking to obtain U.S. citizenship. So far, 160 workers and 25 of their family members have either obtained citizenship or are in the process of doing so through Goodwin.
Wilner Vialer, 35, began working at Goodwin four years ago and serves as an environmental services team lead, setting up and cleaning rooms. Vialer, who came to the U.S. 13 years ago from Haiti, lost his job during the pandemic and was given an opportunity at Goodwin because his mother had been employed at the facility.
He applied for U.S. citizenship before getting his current job, but after he worked there for six months, the Goodwin Living Foundation covered his application fee of $725, the nonprofit said. Vialer became a U.S. citizen in 2021, and his 15-year-old daughter received a citizenship grant and became a U.S. citizen in 2023.
Vialer’s hope is to have his wife join the family from Haiti, as they have been separated for six years.
“This program is a good opportunity,” Vialer said. “They help me, I have a family back home. … This job really [does] support me when I get my paycheck to help them back home.”
Workers are not required to stay with Goodwin after becoming U.S. citizens, but those who do stay are there 20% longer than those who do not participate in the program, Liebreich said. Speeding up the path to citizenship is key to remaining competitive in a global economy, he added.
“If we want to attract and retain this global workforce, which we desperately need, we need to make the process a lot easier,” Liebreich said.
Looking ahead to November, immigration will be a hot topic on the presidential campaign trail and for voters. Both President Joe Biden and former President Donald Trump have made trips to the southern border in recent months to address the large number of migrants entering the country.
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