The Organisation for Economic Co-operation and Development (OECD) has released a revised forecast for the world economy, citing the ongoing Middle East conflict as the primary reason behind weakened global growth prospects and an increase in inflation pressures. The updated projections reflect a notable shift from earlier estimates, with disrupted energy markets driving up prices and eroding prior optimism.
The OECD now anticipates global gross domestic product (GDP) to expand by 2.9% in 2026, followed by a slight improvement to 3.0% the following year. Escalating tensions in the Middle East, particularly those affecting the vital Strait of Hormuz, have caused significant interruptions in energy flows, leading to a surge in prices that underpins these revised expectations. As a result, G20 inflation is expected to reach 4.0% in 2026, higher than previous forecasts.
The United States faces an especially sharp revision to its inflation outlook. The OECD forecasts inflation in the U.S. reaching 4.2% in 2026, a considerable increase from its prior estimate of 2.8%, and well above the Federal Reserve’s own forecast of 2.7%. Although reduced import tariffs—following a decision by the Supreme Court—have offered some price relief, the benefits are being overtaken by higher energy costs. A marked decrease in inflation is projected for 2027, with the rate expected to fall to 1.6%.
U.S. economic growth remains steady but is set to slow further. GDP is projected to advance by 2.0% this year and then cool to 1.7% by 2027. While ongoing investments related to artificial intelligence continue to support activity, their positive impact is tempered by moderating gains in real incomes and consumer expenditure.
Given these conditions, the OECD expects the Federal Reserve to maintain current interest rates through 2027 in response to ongoing pressures from core inflation and continued growth. This stance of keeping rates unchanged is also projected for the Bank of England this year, while the Bank of Japan is anticipated to tighten policy further.
The OECD has underscored the need for central banks to remain alert to potential inflationary risks. The organization has cautioned that if energy supply disruptions persist longer than foreseen, global economic growth could deteriorate by a further 0.5 percentage points and inflationary pressures could intensify.
