OECD’s latest Economic Outlook

03 Jun OECD’s latest Economic Outlook

Global economic outlook weakens amid energy shock and rising inflationary pressures

London, (Oilandgaspress) The evolving conflict in the Middle East has become the dominant force shaping global economic prospects, prompting an energy shock that is driving inflationary pressures and is projected to have adverse impacts on growth, according to the OECD’s latest Economic Outlook.

Due to the uncertainty around the evolution of the conflict, the Outlook sets out two scenarios: a time-limited disruption scenario, in which energy production and trade in the Gulf economies progressively return to pre-conflict levels starting mid-2026, leading to a gradual unwinding of the disruptions; and a prolonged disruption scenario, which assumes that the current disruptions to energy production and exports in the Gulf economies persist well into 2027, with higher energy prices, intensifying risks of supply shortages and a tightening of global financial conditions, all of which carry broader and more long-lasting consequences for the global economy.

Under the assumption of a lasting resolution of the conflict – the “time-limited disruption” scenario –the OECD projects global growth slowing from 3.4% in 2025 to 2.8% in 2026 before picking up to 3.1% in 2027.

GDP growth in the United States is projected at 2.0% in 2026 before slowing to 1.8% in 2027. In the euro area, growth is projected to remain modest at 0.8% in 2026 before picking up to 1.2% in 2027. China’s growth is projected to slow to 4.5% this year and 4.3% in 2027.

Under the “prolonged disruption” scenario, global growth slows to 2.1% in 2026 and 1.8% in 2027, leaving a lasting mark on many countries, especially in Asia, Europe and developing economies most vulnerable to the energy and food price shock. Growth in the OECD is projected at 0.9% in 2026 and 0.5% in 2027 (versus 1.5% in 2026 and 1.7% in 2027 under the “time-limited disruption” scenario).

Inflationary pressures are rising in both advanced and emerging market economies. The energy shock is leading to higher commodity prices, while indirect effects are boosting prices across the economy, notably for agricultural inputs and food. In the time-limited disruption scenario, annual consumer price inflation in the G20 economies is collectively expected to rise to 4.0% in 2026, from 3.4% in 2025, before easing to 3.1% in 2027 as energy and food price pressures fade. Inflation would rise significantly higher in the prolonged disruption scenario.

“Governments have a range of near-term options for mitigating the effects of the energy supply crunch, particularly on the most vulnerable households and small firms,” OECD Chief Economist Stefano Scarpetta said. “But this crisis also demonstrates that the need to wean our economies off the dependency on fossil fuel imports is increasingly urgent.”

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