The Organisation for Economic Co-operation and Development (OECD) said the recent intensification of conflict in the Middle East has derailed an expected improvement in the global growth trajectory and threatens to raise inflation readings materially.
According to the Paris-based institution, a near-halt to energy shipments transiting the Strait of Hormuz is the main channel through which the conflict is exerting pressure on the world economy. The OECD's interim Economic Outlook notes that, before the fighting expanded in Iran, global gross domestic product had been positioned to receive an upward revision. That prospective improvement has now been effectively wiped out.
Headline projections in the report put global GDP growth at 2.9% in 2026, down from 3.3% in 2025, with a slight rebound to 3.0% forecast for 2027. The outlook incorporates several opposing forces: an energy-price surge and the unpredictability of the conflict that sap momentum, set against tailwinds from robust technology-related investment, lower effective tariff rates and carryover momentum from 2025.
The OECD's projections are conditional on a technical assumption that disruption in energy markets will moderate over time. Under that assumption, prices for oil, gas and fertiliser are expected to decline gradually from mid-2026 onward. The organisation noted that its 2026 growth projection is unchanged from the December forecast, but that preliminary indications since December suggested an upward revision of around 0.3 percentage points could have been justified for 2026 if the conflict had not escalated - a potential gain that has been fully erased by the impact of the fighting.
With energy prices now elevated, the OECD expects inflation across the G20 to be 1.2 percentage points higher in 2026 than it had previously projected, putting G20 inflation at 4.0% in 2026 before easing to 2.7% in 2027 under the central assumptions of the interim outlook.
United States outlook and trade dynamics
The OECD highlighted how the conflict compounds an already complex trade and tariff landscape. It said U.S. bilateral tariff rates have fallen following a U.S. Supreme Court decision that struck down tariffs imposed under the International Emergency Economic Powers Act. The organisation pointed to particularly large reductions in bilateral tariffs for several emerging market economies, including Brazil, China and India, while noting that the overall U.S. effective tariff rate remains substantially higher than it was before 2025.
On growth, the OECD projects U.S. annual GDP growth to moderate from 2.0% in 2026 to 1.7% in 2027. The organisation attributes part of near-term strength to strong AI-related investment that is expected to be gradually offset by a slowdown in real income growth and consumer spending. The OECD also noted that its December outlook had pencilled in 1.7% for 2026 and 1.9% for 2027 before the Supreme Court ruling altered tariff expectations.
U.S. headline inflation has been revised up as well, with the OECD forecasting inflation of 4.2% in 2026 - an increase of 1.2 percentage points relative to its prior projection.
Diverging country pathways
China's growth path is projected to slow modestly to 4.4% in 2026 and to 4.3% in 2027, figures the OECD said are unchanged from its earlier projections. By contrast, the euro area is now expected to record GDP growth of 0.8% in 2026, weighed down by higher energy costs, before rising to 1.2% in 2027 as stronger defence spending provides some support. That represents a notable downgrade from December, when the OECD had forecast euro area growth of 1.2% in 2026 and 1.4% in 2027.
Japan's economy is projected to expand by 0.9% in both 2026 and 2027, unchanged from earlier estimates. The OECD said rising energy import costs will offset the support provided by robust business investment in Japan.
Policy guidance
The OECD urged central banks to remain vigilant in the face of heightened inflation risks. It also called on governments to ensure any support measures for households are both well-targeted and time-limited, reflecting the need to balance relief with the risk of entrenching higher inflation expectations.
Overall, the interim outlook paints a picture of a global economy where conflict-driven energy shocks and trade policy shifts are reshaping near-term growth and price trajectories, while technology investment and other structural forces continue to influence medium-term prospects.