Middle East conflict weighs on growth outlook, says OECD

New York [US], March 27: The Middle East conflict is "testing the resilience of the global economy," the Organisation for Economic Co-operation and Development (OECD) said in a report released on Thursday, warning that rising energy prices and uncertainty now weigh on the outlook despite keeping the growth projection for this year unchanged.
Global growth is forecast to be at 2.9% this year, the Paris-based organization said, while it slightly shed the growth expectation for the next year from 3.1 percent to 3 percent.
The unpredictable trajectory of the Middle East conflict was driving up costs and dampening demand, offsetting the positive impetus from investment in new technologies and the momentum carried over from the previous year, it said.
"There's a high level of uncertainty around the duration and the magnitude of the current conflict in the Middle East and that means that this outlook is subject to significant downside risks that could result in lower growth and higher inflation," OECD chief Mathias Cormann told journalists.
The blockade of the Strait of Hormuz and damage to energy infrastructure had caused a sharp rise in energy prices and disrupted supplies of other key materials such as fertilizer, according to the OECD.
The scale and duration of the conflict were highly uncertain, but a prolonged period of higher energy prices would significantly increase costs for businesses and consumer prices, with negative consequences for growth, the OECD said.
The projections in the OECD's interim Economic Outlook are conditional on a technical assumption that energy market disruption moderates over time, with oil, gas and fertilizer prices declining gradually from mid-2026 onward.
The 2026 projection is unchanged from the OECD's December forecast, but preliminary indications since then had suggested global gross domestic product (GDP) growth could have been upwardly revised by around 0.3 percentage points in 2026 had the conflict not escalated, a revision that has been entirely erased by the impact of the fighting.
With energy prices now soaring, G-20 inflation is projected to be 1.2 percentage points higher than previously expected in 2026 at 4 percent, before easing to 2.7 percent in 2027.
In an adverse scenario where energy prices peak higher and stay elevated longer, global growth would be 0.5 percentage points lower by the second year of the shock, and inflation would be 0.9 percentage points higher, the OECD said. The war is compounding an already complex picture of trade.
US bilateral tariff rates have declined following the US Supreme Court ruling against tariffs imposed under the International Emergency Economic Powers Act, with particularly large reductions for several emerging market economies, including Brazil, China and India.
Nonetheless, the overall US effective tariff rate remains well above that prevailing before 2025.
On individual economies, annual GDP growth in the US is projected to moderate from 2 percent in 2026 to 1.7 percent in 2027, as strong AI-related investment is gradually offset by a slowdown in real income growth and consumer spending. The OECD had pencilled in a forecast of 1.7 percent this year and 1.9 percent for 2027 in December, before the Supreme Court ruling.
US headline inflation is now forecast to hit 4.2 percent in 2026, up 1.2 percentage points from the previous projection.
In China, growth is projected to ease to 4.4 percent in 2026 and 4.3 percent in 2027, both in line with the OECD's previous forecasts.
Euro area GDP growth is anticipated to slip to 0.8% in 2026, as higher energy prices weigh on activity, before increasing to 1.2 percent in 2027, helped by stronger defense spending.
That marked a sizeable downgrade from December when the OECD had forecast 1.2 percent growth in 2026 and 1.4 percent in 2027.
In Japan, growth is projected at 0.9% in both 2026 and 2027, both unchanged, as the rising cost of energy imports offsets robust business investment. The OECD urged central banks to remain vigilant and called on governments to ensure any support measures for households were well-targeted and time-limited.
For Türkiye, it forecasted the growth rate of 3.3 percentthis year and 3.8 percent in 2027, respectively.
Source: Qatar Tribune