The ongoing conflict in the Middle East has disrupted the global economy, the Organisation for Economic Cooperation and Development (OECD) warned today, as energy shipments through the Strait of Hormuz face near-halt, driving up prices and threatening inflation.
The Paris-based organisation said the world economy had been on track for stronger-than-expected growth before the war in Iran erupted, but those prospects have largely evaporated. Global GDP growth is now projected to slow from 3.3% in 2025 to 2.9% in 2026, before rising slightly to 3% in 2027. The slowdown reflects surging energy costs and the unpredictable nature of the conflict, which offset gains from technology-related investment, lower effective tariff rates, and momentum from 2025.
The OECD’s interim Economic Outlook assumes that disruptions in energy markets ease over time, with oil, gas, and fertiliser prices gradually declining from mid-2026. While the December forecast had already set the 2026 growth projection at 2.9%, preliminary indications suggested it could have been revised upward by 0.3 percentage points if the conflict had not escalated. That potential gain has now been erased.
Rising energy prices are expected to push G20 inflation 1.2 percentage points higher than previously projected, reaching 4% in 2026 before easing to 2.7% in 2027.
The conflict is compounding complex trade dynamics. Although US bilateral tariff rates have fallen following a Supreme Court ruling against tariffs imposed under the International Emergency Economic Powers Act, the overall US effective tariff rate remains elevated compared with pre-2025 levels. Emerging market economies, including Brazil, China, and India, have benefited from particularly large reductions.
Growth outlooks differ across major economies. In the US, GDP growth is projected to moderate from 2% in 2026 to 1.7% in 2027, as AI-driven investment offsets a slowdown in consumer spending and real income growth. Headline inflation is forecast at 4.2% in 2026, 1.2 percentage points higher than the previous estimate.
China’s growth is expected to ease to 4.4% in 2026 and 4.3% in 2027, consistent with earlier forecasts. The euro area faces a sharper slowdown, with GDP growth projected at 0.8% in 2026, down from December’s 1.2% forecast, before rebounding to 1.2% in 2027 thanks in part to increased defence spending. Japan’s economy is projected to grow 0.9% in both 2026 and 2027, as higher energy costs are balanced by strong business investment.
The OECD urged central banks to remain vigilant and called on governments to ensure any support measures for households are carefully targeted and time-limited.
The report highlights the fragility of the global economy amid geopolitical uncertainty and energy market shocks, showing how conflict in a single region can ripple across trade, inflation, and growth worldwide.
