The OECD warned on Thursday that the escalating conflict in the Middle East has led to a deviation from the strong growth path that was previously anticipated for the global economy. The organization noted that the halt of energy shipments through the Strait of Hormuz could sharply increase inflation rates.
According to reports, the global economy was on a stronger-than-expected growth path before the outbreak of the war in Iran, but this prospect has faded due to current events. The organization projected that global GDP growth would slow from 3.3% in 2025 to 2.9% in 2026, before gradually rising to 3% in 2027. Rising energy prices and the unpredictable nature of the conflict have overshadowed the positive factors associated with strong investments in the technology sector.
Details of the Situation
Matthias Cormann, the head of the OECD, explained to reporters that there is a high level of uncertainty regarding the duration and scale of the current conflict in the Middle East, making these forecasts susceptible to negative risks that could lead to lower growth and higher inflation. The forecasts assume that energy market disruptions will gradually ease, with declining prices for oil, gas, and fertilizers starting in mid-2026.
There has been no adjustment to the 2026 forecasts compared to previous estimates, but initial indicators suggested that global growth could increase by about 0.3 percentage points, had it not been for the escalation of the conflict, an estimate that has been completely nullified due to current events. With rising energy prices, inflation rates in the G20 countries are expected to rise by 1.2 percentage points from previous forecasts, reaching 4% in 2026.
Background & Context
It is noteworthy that the war in the Middle East has exacerbated an already complex trade situation, as U.S. bilateral tariff rates have decreased following a Supreme Court decision to reduce tariffs imposed under the International Economic Emergency Powers Act. However, the overall effective tariff rate in the United States remains significantly higher than it was before 2025.
On an individual level, U.S. GDP growth is expected to slow from 2% in 2026 to 1.7% in 2027. Additionally, the core inflation rate in the United States is expected to reach 4.2% in 2026, an increase of 1.2 percentage points from previous forecasts.
Impact & Consequences
In the Eurozone, GDP growth is expected to decline to 0.8% in 2026 due to rising energy prices, before gradually increasing to 1.2% in 2027. In Japan, growth is expected to remain at 0.9% for both 2026 and 2027.
In the United Kingdom, economic growth forecasts have seen the largest decline among major economies, with the OECD reducing its growth forecast for the British economy in 2026 by half a percentage point to 0.7%. Inflation forecasts for the UK in 2026 have also been raised by 1.5 percentage points, reaching 4%, the largest increase among major advanced economies.
Regional Significance
These developments directly impact Arab countries, as rising energy prices may negatively affect their economies, increasing inflationary pressures and impacting living standards. Additionally, the ongoing conflict in the Middle East reflects a state of instability that could affect foreign direct investment in the region.
In conclusion, the current situation requires Arab governments to take effective measures to address the economic challenges arising from regional conflicts, including enhancing local investments and diversifying income sources.