OECD Cuts Global Growth Outlook to 2.8%, Warns of Recession Risk from Iran Conflict
The OECD downgraded its 2026 global growth forecast from 2.9% to 2.8%, citing energy price shocks and geopolitical tensions from the Middle East conflict. If disruptions continue into 2027, growth could slow sharply to 2.1%.
Downgrade Driven by Geopolitical Turmoil
The OECD has downgraded its global growth outlook, warning that rising energy prices, geopolitical tensions and persistent inflation are weighing on the world economy and could push several countries into recession if disruptions continue. In its quarterly update, the organisation, which represents 38 industrialised countries, forecasts global economic growth of 2.8% in 2026, down from its previous estimate of 2.9%.
Severe Recession Risk If Conflict Persists
However, if the conflict continues into 2027, global growth could slow to 2.1%, the OECD said. The downgrade reflects how vulnerable the world economy remains to energy supply shocks originating from the Middle East. The euro area is expected to see only modest growth, as it is among the regions most exposed to natural gas price shocks and rising industrial energy costs. The OECD forecasts eurozone GDP growth of 0.8% in 2026, down from 1.4% in 2025.
Central Banks Face Difficult Balancing Act
Major central banks face a difficult balancing act between supporting economic growth through lower interest rates and containing inflation through tighter monetary policy. "Central banks are largely expected to keep monetary policy rates stable through 2026 as they balance the risk of inflation expectations becoming de-anchored with that of a sharper growth slowdown stemming from the conflict," the OECD said.
AI Investment Offers a Bright Spot
One of the few bright spots in the OECD's outlook is the continued strength of investment linked to artificial intelligence. But the OECD also warned that a prolonged disruption to energy supplies could threaten the economic productivity AI is expected to deliver. While the United States has led the surge in AI-related capital spending so far, other major economies could increasingly benefit as adoption becomes more widespread and investment accelerates. The OECD said the scale and timing of productivity gains from AI remain uncertain, but added that the benefits could become more visible over the next two years than is currently anticipated.