OECD Cuts Global Growth Forecast as Energy Shock and Geopolitical Tensions Weigh on Outlook

The OECD has lowered its forecast for global economic growth, warning that rising energy costs, geopolitical tensions and persistent inflationary pressures are creating a more challenging environment for economies worldwide.

In its latest OECD Economic Outlook, Volume 2026 Issue 1, the organisation projects global GDP growth of 2.8% in 2026, down from 3.4% in 2025, before recovering to 3.1% in 2027. The downgrade reflects the economic impact of ongoing disruptions linked to the conflict in the Middle East, which have pushed up oil, energy and commodity prices.

The report identifies the evolving situation in the Middle East as the principal factor shaping the global outlook. Higher energy prices are feeding through to inflation, reducing household purchasing power and increasing costs for businesses across multiple sectors. The OECD notes that the economic consequences extend beyond energy markets, affecting agricultural inputs, food prices and global supply chains. (OECD⁠)

Under its baseline scenario, which assumes that disruptions remain temporary, the OECD expects inflation across G20 economies to rise from 3.4% in 2025 to 4.0% in 2026 before easing to 3.1% in 2027.

The outlook varies significantly across major economies. Growth in the United States is projected at 2.0% in 2026 and 1.8% in 2027, while the euro area is expected to expand by just 0.8% next year before improving to 1.2% in 2027. China’s economy is forecast to grow by 4.5% in 2026 and 4.3% in 2027, reflecting slower but still comparatively strong expansion.

The OECD also outlines a more adverse scenario in which energy and commodity supply disruptions persist for a prolonged period. Under this scenario, global growth would slow to 2.1% in 2026 and 1.8% in 2027, while OECD economies collectively would grow by less than 1% in 2026 and just 0.5% in 2027. Countries highly dependent on imported energy and food would be particularly vulnerable. (OECD⁠)

The organisation calls on governments to maintain fiscal discipline while supporting investment in energy security, productivity and supply chain resilience. It also stresses the importance of structural reforms aimed at improving labour market participation, accelerating digitalisation and encouraging private investment.

For Europe, the report highlights continued exposure to energy market volatility and weaker industrial activity. At the same time, increased public spending on defence, infrastructure and energy transition projects is expected to provide some support for growth over the medium term.

The OECD concludes that while the global economy remains resilient, the balance of risks remains tilted to the downside. Future growth prospects will depend heavily on developments in energy markets, geopolitical stability and the ability of governments and businesses to adapt to a more uncertain economic environment.