Opening remarks given by OECD Secretary-General Mathias Cormann to launch the OECD Economic Outlook during the 2026 Ministerial Council Meeting in Paris, France.
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Good morning. A warm welcome to the launch of this OECD Economic Outlook.
The title of our Outlook today is ‘Under Pressure’.
That is not a rhetorical flourish.
It is precisely where the global economy is at.
For five years, the world economy showed remarkable resilience.
Absorbing a pandemic, an energy shock and the fastest interest rate tightening in a generation.
Global growth reached 3.4 per cent last year.
The technology sector was booming.
AI-related investment was providing real momentum.
Then, in late February, the conflict in the Middle East escalated sharply.
The Strait of Hormuz was effectively closed and has been ever since.
The consequences are now flowing through every corner of the global economy.
The Gulf region is far more than an energy supplier.
This slide illustrates the breadth of the exposure.
Prior to the conflict, Gulf countries accounted for 26 per cent of global oil supply and 31 per cent of all liquefied natural gas.
Global oil supply has since fallen by 13.5 per cent.
Gulf oil production is down 45 per cent.
But the disruption extends well beyond energy.
Qatar alone accounts for around 35 per cent of global helium exports – Helium being a critical input for semiconductor manufacturing, which is now under acute pressure precisely at the moment when demand is surging from AI and digital infrastructure investment.
That is – the upside and the downside risk are directly connected.
The energy supply shock has produced sharp price increases across the board.
Brent crude rose to 118 US dollars per barrel in late April – its highest level since 2022.
It has remained above 90 dollars for nearly three months.
Diesel and jet fuel prices are around 50 per cent higher than before the conflict, pushing up transport, aviation, and freight costs across the global economy.
But the surge in commodity prices extends well beyond energy.
Prices have risen by up to 55 per cent for a range of non-energy commodities – highlighted on this slide.
That means higher costs for fertilisers, digital technologies, automotive components and chemicals.
Inflation, which had been on a clear downward path, has turned.
Since February, price pressures have risen in the United States, the euro area, South Africa, Brazil, and India.
Government support measures – price caps, subsidies, tax reductions – have contained some of the increase.
Without them, the picture would be worse.
Of course, the impact will not fall evenly.
Around one third of OECD economies are projected to experience negative real wage growth this year.
Workers in these countries will see their living standards fall, which is the human reality behind the inflation numbers in front of us.
There is an important countervailing force in this picture.
The technology sector – and in particular, investment driven by AI – has been a significant engine of growth.
Industrial production of computer and electronic products is substantially outpacing total industrial production.
But as the helium and semiconductor point illustrates, this positive force is not insulated from the energy shock.
Before turning to our projections, one important piece of context on trade policy.
The effective tariff rate on United States merchandise imports was around 10 per cent in April this year – down from around 18 per cent a year earlier.
This reduction has been positive for trade and growth and is one reason underlying momentum was stronger than expected before the conflict escalated.
However, uncertainty remains high.
The 10-percentage-point tariff introduced by the United States following the Supreme Court’s ruling on the International Emergency Economic Powers Act is due to expire in late July unless Congress extends it.
How that is ultimately resolved will matter for the outlook.
Our central projection – the relatively more time-limited disruption scenario – assumes energy prices evolve broadly in line with futures markets as of 26 May, with oil averaging 92 US dollars per barrel this year and 80 dollars next year.
We project global GDP growth of 2.8 per cent this year and 3.1 per cent next year – compared to 3.4 per cent last year.
That is 0.4 percentage points lower for 2026 than we projected in February, before the conflict escalated.
On inflation: average G20 headline inflation is projected to rise from 3.4 per cent last year to 4.0 per cent this year, or 0.9 percentage points higher than our February forecast – before easing to 3.1 per cent in 2027.
In the United States, stronger energy-sector exports will partly offset lower household purchasing power.
GDP growth is projected to slow from 2.1 per cent last year to 2.0 per cent this year and 1.8 per cent next year.
In the euro area, growth is expected to ease from 1.4 per cent in 2025 to 0.8 per cent this year, before recovering to 1.2 per cent next year.
Labour market resilience and Next Generation EU spending will partly offset tighter fiscal policy in France, Italy, and elsewhere.
Japan is among the economies most exposed to this conflict through energy imports and supply chains.
Growth is projected to fall from 1.1 per cent in 2025 to 0.6 per cent this year, recovering to 0.8 per cent in 2027.
Domestic demand, supported by robust wage growth and energy subsidies, will provide some cushion.
In China, growth is projected to ease from 5.0 per cent last year to 4.5 per cent this year and 4.3 per cent in 2027.
High energy import dependence and falling real estate investment are the primary drags.
This outlook is surrounded by significant uncertainty – and the risks are predominantly to the downside.
To illustrate the downside, we have developed a prolonged disruption scenario – in which energy prices remain 50 per cent higher than futures market prices imply, from the third quarter of 2026 through to the third quarter of 2027.
Under this scenario, oil prices would average 115 US dollars per barrel this year and 119 dollars next year.
Global growth would fall to 2.1 per cent this year and 1.8 per cent next year.
G20 inflation would increase to 4.4 per cent in both years.
Prolonged high energy prices and input shortages also pose a particular risk to the technology sector and AI.
Energy accounts for around 60 per cent of data centre operating costs – meaning a sustained shock would undermine the very growth driver that has been partly offsetting the disruption.
The near-closure of the Strait of Hormuz is squeezing fertiliser markets.
Fertiliser prices have risen close to their 2022 peaks.
Our estimates suggest that a sustained 47 per cent increase in fertiliser prices – which reflects current market conditions – would raise agricultural commodity prices by around 8 per cent next year.
Wheat prices could rise by 13 per cent.
This is not an abstract risk. It is a very real food security risk – and it will fall hardest on the most vulnerable economies and the most vulnerable households within them.
Financial risks are also rising.
Since late February, sovereign bond yields have increased across most economies, with pressure more pronounced at shorter maturities.
That means governments are facing more immediate financing cost increases.
This limits the fiscal space available to respond to the shock.
In terms of policy priorities.
The most important single thing that can be done to ease pressure on the global economy right now is to re-establish secure trade routes through the Middle East and protect energy infrastructure.
As long as the disruption continues, every other policy response is managing consequences rather than addressing causes.
On monetary policy: central banks in the major advanced economies have kept policy rates unchanged so far this year.
If the energy shock remains contained and inflation expectations stay anchored, the rise in inflation may prove temporary and may not require a policy response.
But if broader and more persistent price pressures emerge, adjustments will be needed.
Central banks will need to remain vigilant and communicate clearly.
On fiscal policy: the constraints are real and tightening.
Total public debt in the OECD reached 111 per cent of GDP at end of last year – up from 74 per cent in 2007.
Spending pressures from population ageing, debt servicing, and rising defence requirements are all pointed in the same direction.
Stronger efforts to contain and reallocate spending, improve public sector efficiency, and enhance revenues are essential – while preserving the growth potential on which debt reduction ultimately depends.
In response to the energy shock, many OECD governments have introduced support measures for households and businesses.
Our recommendation: targeted, temporary, with clear expiry mechanisms.
Broad-based measures are fiscally costly and blunt the incentives to reduce energy use.
Our analysis shows that of all energy support measures OECD countries have adopted in response to this conflict, a very high 55 per cent have in fact been untargeted.
At a time of constrained public finances, that level of inefficiency would seem unaffordable.
Countries can reduce vulnerability to future energy shocks by diversifying their energy mix.
Renewables accounted for just 6 per cent of total energy supply across the OECD between 2019 and 2024.
Nuclear energy – which accounted for only 9 per cent of total OECD energy supply over the same period, down from 11 per cent in the mid-1990s – is a vital tool for energy security, affordability, and sustainability that deserves clear-eyed reassessment.
Expanding nuclear capacity, including through small modular reactors, can provide reliable, low-emissions power that complements renewables and meets rising demand from digital technologies.
Open markets and rules-based trade are among our most powerful tools for building resilience.
And yet import-restrictive measures are expanding rapidly. New restrictions introduced since 2009 now affect an estimated 19.7 per cent of world imports – up from just 3.1 per cent in 2016.
That is a six-fold increase in less than a decade.
New export restrictions in response to supply disruptions should be firmly avoided – they only exacerbate shortages.
Constructive dialogue – making the trading system fairer and more resilient while preserving the benefits of openness – is the only durable answer.
Finally, structural reform.
Potential GDP per capita growth in the OECD is estimated at just 1.4 per cent this year – down from around 2.2 per cent back in the year 2000.
The long-run productivity slowdown is the most important economic challenge most of our countries face, and it will not be solved just by managing the current shock.
Our most consistent structural reform recommendations for countries: regulatory reform to lower entry barriers, reduce red tape, and strengthen competition – and investment in skills through more effective education and lifelong learning systems.
In closing:
The energy shock from the Middle East conflict is real and serious.
It is raising costs and uncertainty for households and businesses around the world.
The tools to respond exist.
Re-establishing secure energy supply routes.
Targeting support carefully.
Keeping monetary policy anchored to the data.
Putting public finances on a more sustainable path.
Diversifying energy sources.
Defending open markets.
Avoiding new export restrictions.
And driving the structural reforms that determine long-run living standards.
None of them are easy. All of them are necessary.
Thank you very much. I now hand over to our Chief Economist, Stefano Scarpetta, to talk to us – and we will then take your questions.
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