The OECD has identified the ongoing Middle East conflict as the primary driver of the current global economic outlook, citing a surge in energy and input prices since February that has fueled inflation and weighed on real incomes and growth [1]. In response to these developments, the OECD has revised its projected global GDP growth for 2026 downward to 2.8% from a previous estimate of 3.4%, while maintaining its 2027 forecast at 3.1% [1].
The OECD's outlook considers two scenarios: a time-limited disruption, which would result in a modest slowdown in growth followed by recovery, and a prolonged disruption, which could lead to higher energy prices, supply shortages, tighter financial conditions, and weaker confidence, thereby depressing economic activity further [1]. Under the prolonged disruption scenario, inflation could rise by approximately 0.4 percentage points in 2026 and by 1.3 percentage points in 2027 [1].
The organization has urged central banks to remain vigilant, suggesting that temporarily higher headline inflation due to the energy price shock can be tolerated as long as longer-term inflation expectations remain well-anchored [1]. Additionally, the OECD recommends that governments keep energy relief measures temporary, targeted, and well-designed to address the ongoing risks [1].
CONCLUSION
The OECD's latest assessment underscores the significant risks posed by the Middle East conflict to global growth and inflation. With a notable downgrade to the 2026 GDP forecast and warnings of further inflationary pressures under a prolonged disruption, policymakers are urged to remain cautious and responsive to evolving energy market dynamics.