The world’s major economies are delicately balanced, with prospects highly dependent on the speed of resolving the Middle East conflict.
The OECD’s latest Economic Outlook, released overnight, said the conflict was the dominant force shaping global prospects, with the unhealthy dual impact of higher inflation combined with lower growth.
OECD economists say the outlook has two clear scenarios – a time-limited disruption scenario where conditions return to pre-conflict levels mid-2026, and a prolonged disruption that continues well into 2027.
The second scenario would “carry broader and more long-lasting consequences for the global economy”.
OECD Secretary-General Mathias Cormann said the global economy entered 2026 with robust momentum.
However, the outlook had weakened significantly since the start of the conflict in the Middle East.
“The longer the disruptions last, the larger the economic and social costs become,” Mr Cormann said.
“Any fiscal support that countries provide in response to the shock need to be targeted towards those most in need and temporary, to avoid a further increase in public debt and preserve incentives to save energy.
“More broadly, countries need to lay the foundations for stronger growth and productivity by improving the business environment, enhancing skills, and unlocking the benefits of AI and other transformative technologies.”
If the Middle East conflict is resolved soon, the OECD projects global growth slowing from 3.4 percent in 2025 to 2.8 percent in 2026 before picking up to 3.1 percent in 2027.
Under the “prolonged disruption” scenario, global growth is forecast to slow to 2.1 percent in 2026 and 1.8 percent in 2027.
“Inflationary pressures are rising in both advanced and emerging market economies,” the Outlook said.
“The energy shock is leading to higher commodity prices, while indirect effects are boosting prices across the economy, notably for agricultural inputs and food.
“Governments face multiple spending pressures and need to take stronger efforts to ensure long-term debt sustainability.”
The Outlook says the current crisis demonstrates the increasing urgency of weaning economies off the dependency on fossil fuel.
Working with over 100 countries, the OECD is a global policy forum that promotes policies to preserve individual liberty and improve the economic and social well-being of people around the world.
The full report is here.
