The evolving conflict in the Middle East has become the dominant force shaping global economic prospects, triggering an energy shock that is driving inflationary pressures and threatening global growth, according to the OECD’s latest Economic Outlook.
While the global economy entered 2026 with robust momentum, the outlook has weakened significantly. Due to high uncertainty, the OECD has outlined two distinct potential paths for the global economy: a “Time-Limited Disruption” scenario and a “Prolonged Disruption” scenario.
“The outlook has weakened significantly since the start of the conflict in the Middle East, with effects likely to be felt for some time,” said OECD Secretary-General Mathias Cormann.
“The longer the disruptions last, the larger the economic and social costs become. Any fiscal support that countries provide in response to the shock needs to be targeted towards those most in need and temporary, to avoid a further increase in public debt and preserve incentives to save energy.”
Two economic scenarios for 2026–2027
1. Time-limited disruption scenario
This baseline assumes a lasting resolution to the conflict where Gulf energy production and trade progressively return to pre-conflict levels starting mid-2026.
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Global Growth: Projected to slow from 3.4% in 2025 to 2.8% in 2026, before recovering to 3.1% in 2027.
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Inflation: Annual consumer price inflation in G20 economies is expected to rise to 4.0% in 2026 (up from 3.4% in 2025) before easing to 3.1% in 2027.
2. Prolonged disruption scenario
This downside risk assumes current energy production and export disruptions persist well into 2027, resulting in sustained high energy prices, supply shortages, and tighter global financial conditions.
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Global Growth: Drops sharply to 2.1% in 2026 and 1.8% in 2027.
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OECD Area Growth: Slows to just 0.9% in 2026 and 0.5% in 2027 (compared to 1.5% and 1.7% in the baseline). Asia, Europe, and developing nations would face severe energy and food price shocks.
Major economies growth projections
| Region / Country | 2026 Projection | 2027 Projection |
| United States | 2.0% | 1.8% |
| China | 4.5% | 4.3% |
| Euro Area | 0.8% | 1.2% |
Policy recommendations for central banks and governments
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Monetary Policy: Central banks must remain vigilant. The OECD notes that supply-driven price increases do not necessarily require immediate interest rate hikes, provided inflation expectations remain anchored. However, central banks must stand ready to act if broader price pressures intensify or growth weakens significantly.
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Fiscal Policy: Governments are urged to ensure long-term debt sustainability. Energy price relief measures must be strictly temporary, targeted to vulnerable households and small firms, and designed to preserve incentives to reduce energy demand.
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Structural Reforms: To mitigate future vulnerabilities, countries must diversify energy supplies, improve energy efficiency, enhance workforce skills, and improve the business climate by unlocking the benefits of AI and transformative technologies.
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“Governments have a range of near-term options for mitigating the effects of the energy supply crunch,” said OECD Chief Economist Stefano Scarpetta. “But this crisis also demonstrates that the need to wean our economies off the dependency on fossil fuel imports is increasingly urgent.”
