OECD cuts 2026 global growth forecasts, citing Middle East war fallout

The global economic outlook faces significant headwinds from the Middle East conflict, with the Organisation for Economic Cooperation and Development (OECD) warning of a potential slowdown in global growth. The OECD projects growth to ease from 3.4% in 2025 to 2.8% in 2026, a revision from its previous forecasts, contingent on the duration of the conflict.

If the conflict is short-lived, oil and gas production in the Gulf could recover, limiting shortages primarily to Asia and being cushioned by strategic reserves. However, a prolonged disruption extending into next year could drastically reduce global growth to 2.1% in 2026 and 1.8% in 2027. Such rates are comparable to those seen during major crises like the 2008 financial crash or the COVID-19 pandemic. This scenario also raises the possibility of recessions in some countries and a substantial increase in global inflation.

Higher energy prices could add 0.4 percentage points to global inflation in 2026 and 1.3 percentage points in 2027, likely prompting central banks to raise interest rates. In its baseline scenario, the OECD anticipates inflation across G20 economies peaking at 4% this year before moderating to 3.1% next year, with interest rates expected to remain largely on hold this year and be cut in 2027. Global trade growth is also set to moderate after a strong 2025, though demand for AI-related goods and investment may offer some support.

The economic outlook is uneven across major economies. The United States is expected to see growth ease from 2.1% in 2025 to 2.0% in 2026 and 1.8% in 2027, with stronger energy exports partially offsetting higher prices' impact on household purchasing power. Eurozone growth is projected to slow to 0.8% this year before rising to 1.2% next year, supported by resilient labor markets and increased defense spending. Britain's growth is forecast to slow to 0.9% this year before recovering to 1.1% in 2027. Asia, particularly Japan, is expected to be hit hard by trade disruptions linked to the Gulf conflict, with Japan's growth forecast downgraded.