THE Organization for Economic Co-operation and Development (OECD) on Friday raised its forecast for global economic growth as inflation eases and China exits COVID restrictions, but warned of vulnerabilities as evidenced by turmoil in the U.S. banking sector.

The OECD said it now expects the global economy to grow 2.6% this year, down from 2.2% in its previous November forecast.

But it remains below the 3.2% expansion seen in 2022, the Paris-based OECD said in its updated economic outlook titled “A Fragile Recovery”.

“More positive signs have now started to emerge, with business and consumer sentiment starting to improve, food and energy prices falling and China fully reopening,” the official said. OECD in its report on the interim economic outlook.

But he warned that “the improving outlook is still fragile. The risks have become a little better balanced, but remain tilted to the downside”.

He cited uncertainty over the course of the war in Ukraine, the risk of further pressure on energy markets and the impact of rising interest rates.

Central banks around the world have raised rates in a bid to rein in high inflation for decades, but markets fear rising borrowing costs could tip economies into recession.

“Signs of the impact of tighter monetary policy have started to appear in parts of the banking sector, including regional banks in the United States,” he said.

“Higher interest rates could also have larger-than-expected effects on economic growth, particularly if they expose underlying financial vulnerabilities.”

The monetary tightening was linked to the collapse of Silicon Valley Bank last week after it posted a $1.8 billion loss on bonds whose prices were depressed by rising rates.