OECD cuts global growth forecast on protracted Middle East conflict

• Developing economies face greater risks from prolonged disruptions
  
  
• Extended conflict could trigger recession and higher inflation
  
  

Mysteel Global: In its latest Economic Outlook report released on June 3, the Organization for Economic Co-operation and Development (OECD) cut projections for global economic growth this year, saying that the conflict in the Middle East has become the dominant force shaping the global economic outlook and is putting pressure on global economic growth.

The OECD said the conflict situation in the Middle East remains unclear, and global growth prospects hinge largely on how long the hostilities last.

If energy prices gradually ease from mid-2026 onward, global economic growth is projected to slow from 3.4% in 2025 to 2.8% in 2026, before recovering to 3.1% in 2027.

Under the time-limited disruption scenario, GDP growth in the United States is expected to ease from 2.1% in 2025 to 2% this year and 1.8% in 2027, while the growth in China is projected to moderate to 4.5% in 2026 and 4.3% in 2027, as against the 5% in 2025.

GDP growth among G20 countries is expected to ease from 3.3% in 2025 to 3.0% this year and remain at that level in 2027. Meanwhile, annual consumer price inflation in the G20 countries is expected to rise to 4.0% this year from 3.4% in 2025, and ease to 3.1% in 2027 as energy and food price pressures gradually fade.

However, the OECD pointed out in the report that the longer the disruptions last, the greater the economic and social costs. If the disruptions caused by the conflict persist well into 2027, global economic growth would slow sharply to just 2.1% in 2026 and 1.8% in 2027, pushing some economies into or close to recession.

In this scenario, global inflation would rise by 0.4 percentage points in 2026 and 1.3 percentage points in 2027, with upside pressures from elevated commodity prices partially offset by weaker final demand.

The consequences would be global, but developing economies could suffer most, the organization said. Such economies are more exposed due to limited energy reserves, heavy household spending on energy and food, constrained fiscal capacity and weak social safety nets, low private savings and unstable currencies, it said.

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