Publications

The evolving conflict in the Middle East is having significant humanitarian costs and testing the resilience of a global economy boosted by with solid underlying strong AI-related activity. The prices of energy and other key inputs produced in the Persian Gulf have soared since February, pushing up headline inflation, and some signs of supply shortfalls are emerging amidst disruptions to production and exports. Given the exceptionally uncertain situation this Economic Outlook presents two distinct scenarios of how the global economy could evolve over the next eighteen months. A time-limited disruption scenario, with energy production in the Gulf economies recovering from the third quarter of 2026 would result in global growth moderating in 2026 before picking up in 2027. A prolonged disruption scenario, with supply constraints persisting until the latter half of 2027, would result in significantly weaker growth outcomes and substantially higher inflation in both 2026 and 2027. The slowdown could be exacerbated if AI investment is adversely impacted by disruptions to the supply of energy and other key products or if national export restrictions are introduced. Amidst heightened uncertainty, flexible and agile public policies are needed to ensure macroeconomic stability. Key medium-term policy priorities also remain, such as the need to establish a credible fiscal path to debt sustainability, enhance energy security and resilience, secure a lasting decline in trade tensions and strengthen the prospects for sustainable and resilient growth.This issue includes an assessment of the global economic situation, a chapter on government policy responses to current energy crisis and policies to strengthen energy resilience, a chapter on the economic consequences of higher defence spending and a chapter summarising developments and providing projections for each individual country. Coverage is provided for all OECD Members as well as for selected partner economies.

Public finances in OECD countries are facing significant challenges such as slow economic growth, ageing populations, high debt from recent crises, and new spending pressures, including in defence. This report looks at efforts made by OECD countries as well as some accession candidate countries and one non-Member economy in 2025 and 2026 to restore their public finances. Drawing on the results of the 2026 OECD Survey on Restoring Public Finances, it provides an overview of ongoing savings initiatives across all major spending areas, as well as details of reforms and savings measures. Further reforms will be required to ensure fiscal sustainability and generate fiscal space to empower government action. Governments will also need to continue strengthening their budgeting institutions. Finally, given that lasting support for reform depends on citizens’ awareness and ownership of both the need for change and its implications, focusing on empowering public understanding of the fiscal challenges ahead will be essential in the future. A companion report entitled The People and the Budget addresses these issues.