PARIS: The global economic outlook hinges on how long the war in the Middle East lasts, with recession in some countries and sharply higher inflation a real possibility if it drags on into next year, the Organisation for Economic Cooperation and Development warned on Wednesday (Jun 3).
If the conflict proves short-lived, Gulf oil and gas production could gradually return to pre-crisis levels from the third quarter with shortages confined to Asia and cushioned by strategic reserves and shipments from other producers.
In that baseline scenario, global growth is projected to slow from 3.4 per cent in 2025 to 2.8 per cent in 2026 before picking up to 3.1 per cent in 2027, broadly in line with the OECD’s March forecasts.
But if energy disruption persists well into next year, global growth could slow sharply to 2.1 per cent in 2026 and 1.8 per cent in 2027 – rates rarely seen outside major crises such as the 2008 to 2009 financial crash or the COVID-19 pandemic.
Some economies could fall into outright recession, with Asian countries reliant on Middle East energy supplies expected to be hit hardest.
Higher energy prices could add 0.4 percentage points to global inflation in 2026 and 1.3 percentage points in 2027, likely prompting central banks to hike interest rates by 0.5 to 0.75 percentage points in the short term.
In the baseline scenario, the OECD forecast that inflation across G20 economies would peak at 4 per cent this year before slowing to 3.1 per cent next year with interest rates largely on hold this year and cuts expected next year.
Global trade growth is set to moderate following a strong 2025, though robust demand for AI-related goods and investment, especially in Asia, should provide some support.
