Wednesday's June Economic Outlook put global growth on a path from 3.4% in 2025 down to 2.8% in 2026 and back up to 3.1% in 2027, a trajectory that holds only if Gulf energy disruptions prove temporary and output begins to stabilize around midyear. The group had previously forecast 2.9% full-year growth for 2026, according to Barron's.
A scenario in which hostilities drag through 2027 would compress global growth to 2.1% and then 1.8% in successive years — territory the world has entered only during catastrophic downturns like the 2008-2009 financial crash and the Covid pandemic, according to Reuters. Asian economies that depend heavily on Middle Eastern oil and gas imports would absorb the worst of the blow, and a number of countries could slide into recession outright.
"The conflict in the Middle East has become the dominant force shaping the global economic outlook," OECD chief economist Stefano Scarpetta said in the report. "The longer the disruptions last, the larger the economic and social costs become."
The conflict has sent energy prices soaring since February as production and exports from Persian Gulf economies have been curtailed, the OECD said. That has pushed up the costs of fertilizers and other key industrial inputs, squeezed household incomes, and slowed economic activity worldwide.
Under the worst-case path, the OECD estimates energy-driven price pressures would lift global inflation by 0.4 percentage points this year and by a steeper 1.3 percentage points in 2027, according to Reuters. That would likely force most central banks to push rates up by between half a point and three-quarters of a point. Even in the calmer baseline, G20 inflation is seen cresting at 4% in 2026.
"Around one-third of OECD economies are projected to experience negative real wage growth this year," OECD Secretary General Mathias Cormann said, according to Reuters. "Workers in these countries will see their living standards fall."
At the country level, the baseline outlook shows American expansion trimming to 2.0% this year and 1.8% next, while the euro zone decelerates sharply to just 0.8% — roughly half its 1.4% pace in 2025. Ample energy reserves give China a degree of insulation, with output moderating gradually to 4.5% and then 4.3% over the next two years, but Japan is among the most exposed, with growth forecast to drop to 0.6% in 2026.
On the policy front, the OECD recommended that relief measures be concentrated on households and businesses least able to absorb higher energy costs, with support unwound gradually as prices retreat. More broadly, the report argued that cutting reliance on any single source of energy or trade corridor requires accelerated investment in alternative supplies and more robust supply-chain architecture.