Key facts
- OECD warns protracted Middle East conflict could cause global recession and higher inflation.
- Recession is a real possibility if the conflict drags on into next year.
- Higher energy prices could add 0.4 percentage points to global inflation in 2026 and 1.3 percentage points in 2027.
- Central banks may hike interest rates by 0.5 to 0.75 percentage points due to persistent energy disruption.
- Global growth could slow sharply to 2.1% in 2026 and 1.8% in 2027 if energy disruption persists.
The Organisation for Economic Co-operation and Development (OECD) has warned that the duration of the Middle East conflict is critical for the global economic outlook. If the conflict is short-lived, Gulf oil and gas production could recover from the third quarter, with shortages mainly affecting Asia and being mitigated by strategic reserves. In this baseline scenario, global growth is projected to slow from 3.4% in 2025 to 2.8% in 2026 and 3.1% in 2027. However, if energy disruption persists into next year, global growth could fall sharply to 2.1% in 2026 and 1.8% in 2027, rates not seen outside major crises. Some economies could face recession, particularly those reliant on Middle East energy. Higher energy prices could increase global inflation by 0.4 percentage points in 2026 and 1.3 percentage points in 2027, potentially leading central banks to raise interest rates by 0.5 to 0.75 percentage points. The OECD forecasts G20 inflation to peak at 4% this year before slowing to 3.1% next year, with interest rates largely on hold this year and cuts expected in 2026. Global trade growth is expected to moderate after a strong 2025, supported by demand for AI-related goods. The OECD provided uneven outlooks for major economies, projecting US growth to ease from 2.1% in 2025 to 1.8% in 2027, euro zone growth to slow from 1.4% to 0.8% this year before rising to 1.2% next year, and UK growth to slow to 0.9% this year before recovering to 1.1% in 2027. China's growth is expected to slow from 5.0% in 2025 to 4.3% in 2027, with ample energy reserves limiting its exposure to oil price spikes. Japan is anticipated to be significantly impacted by trade disruptions, with growth slowing from 1.1% in 2025 to 0.6% in 2026 before a slight increase to 0.8% in 2027.