The Organization for Economic Co-operation and Development lowered its global economic growth projection for 2026, cautioning that the fallout from the Middle East conflict may linger for some time even after its resolution.
The OECD now expects the world economy to grow at a slower pace of 2.8% this year, compared with a 2.9% expansion projected in March, marking a sharper slowdown from last year's 3.4% growth. For 2027, the OECD now forecasts global economic growth to pick up to 3.1%, compared with its previous 3% outlook.
The report, which the OECD said was finalized amid a growing possibility of a peace deal between the US and Iran, assumes a gradual easing in energy prices beginning in the middle of this year. Crude and gasoline prices have soared since the Iran war began at the end of February.
The group, however, warned of greater economic damage if the conflict drags on, projecting global growth of 2.1% this year.
"Even after the conflict ends, the economic effects are likely to be felt for some time given the months it will take to restore damaged infrastructure and transport routes and deliver products around the world," the OECD said on Wednesday.
US President Donald Trump reportedly said in a podcast with the New York Post that Iran has agreed not to have nuclear weapons, but Tehran could still change its mind. Previously, Trump said in a social media post that negotiations with Iran were continuing, despite Iranian state-affiliated outlet Tasnim reporting that the country had suspended talks with Washington.
The OECD continues to expect US economic growth at 2% this year, though it raised the estimate for next year to 1.8% from 1.7% previously expected.
"While the energy shock and heightened uncertainty stemming from the evolving conflict in the Middle East are expected to sap household consumption growth, underlying (US) growth remains supported by strong (artificial intelligence)-related investment," the OECD said.
The OECD lowered its 2026 inflation forecast for the US to 3.7% from 4.2% previously. The updated estimate, however, remains well above the Federal Reserve's 2% target.
"The energy price shock is set to push year-over-year headline (personal consumption expenditure) inflation sharply higher, peaking around 4% in mid-2026 before declining as energy prices fall back," the OECD said.
Annual consumer inflation in the G-20 countries is expected to remain unchanged at 4% in 2026 and ease to 3.1% in 2027, compared with 2.7% predicted in March.
