The Organization for Economic Co-operation and Development (OECD) raised its global economic growth forecast on Friday as inflation eased and China emerged from COVID restrictions, but warned of vulnerabilities as seen in the US bank sector turmoil .

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

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

“More positive signs are now emerging, with improving business and consumer sentiment, falling food and energy prices, and the full reopening of China,” the OECD said in its interim Economic Outlook report.

But it warned that “the improvement in the outlook is still fragile. Risks have become somewhat better balanced, but remain tilted to the downside.”

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

Central banks around the world have raised rates in an effort to tame decades-high inflation, but markets fear rising borrowing costs could push economies into recession.

“Signs of the effects of tighter monetary policy are beginning to appear in parts of the banking sector, including regional banks in the United States,” it said.

“Higher interest rates can also have a stronger than expected effect on economic growth, especially if they expose underlying financial weaknesses.”

Monetary tightening has been linked to the collapse of Silicon Valley Bank last week, as it posted a $1.8 billion loss on bonds whose prices were brought down by higher rates.