The evolving conflict in the Middle East has human and economic costs for the countries directly involved, and will test the resilience of the global economy. A halt in shipments through the Strait of Hormuz and the closure or damage of energy infrastructure has generated a surge in energy prices and disrupted the global supply of energy and other important commodities, such as fertilisers.
Volatility in financial markets has picked up, particularly in some Asian economies, and financial conditions have tightened, though they remain mildly accommodative in both advanced and emerging-market economies.
The breadth and duration of the conflict are very uncertain, but a prolonged period of higher energy prices will add markedly to business costs and raise consumer price inflation, with adverse consequences for growth.
Prior to the escalation of the conflict, global growth remained resilient, with activity boosted by strong AI-related investment and production, and supportive financial and fiscal conditions.
US bilateral tariff rates have declined following the US Supreme Court ruling against the tariffs imposed under the International Emergency Economic Powers Act. There are particularly large reductions for several emerging-market economies, including Brazil, China and India. Nonetheless, the overall US effective tariff rate remains well above that prevailing prior to 2025.
Higher energy prices and supply-chain disruptions come at a time when inflation remains above target in a few major economies, including Brazil, Mexico, Türkiye, the United Kingdom and the United States. Medium-term inflation expectations have also risen following the energy price spike.
Global GDP growth is projected to ease to 2.9% in 2026 before edging up to 3.0% in 2027. The energy price surge and the unpredictable nature of the evolving conflict in the Middle East will raise costs and lower demand, offsetting the tailwinds from strong technology-related investment and production, lower effective tariff rates and the momentum carried over from 2025.
These projections are conditional on a technical assumption that the current extent of energy market disruption moderates over time, with oil, gas and fertiliser prices declining gradually from mid-2026 onwards.
Annual GDP growth in the United States is projected to moderate from 2.0% in 2026 to 1.7% in 2027, as strong AI-related investment is gradually offset by a slowdown in real income growth and consumer spending. Euro area GDP growth is anticipated to ease to 0.8% in 2026, as higher energy prices weigh on activity, before increasing to 1.2% in 2027 helped by stronger defence spending. In China, growth is projected to ease to 4.4% in 2026 and 4.3% in 2027.
G20 inflation is projected to be 1.2 percentage point higher than previously expected in 2026 at 4.0%, before easing to 2.7% in 2027 with an assumed fading of energy price pressures. Core inflation in the G20 advanced economies is anticipated to weaken from 2.6% in 2026 to 2.3% in 2027.
A significant downside risk to the outlook is that persistent disruptions to exports from the Middle East that raise energy prices even further than assumed and aggravate shortages of key commodities, add to inflation and reduce growth. Such a scenario, or lower than expected returns from AI investment, could also trigger more extensive repricing in financial markets, weakening demand and raising financial stability risks.
On the upside, a surprisingly resilient business sector, an earlier-than-assumed resolution of the conflict in the Middle East that lowers energy prices, or broadening investment in artificial intelligence technologies that yields stronger productivity gains, could push growth higher.
Faced with the energy price shock, central banks need to remain vigilant and ensure that inflation expectations stay well anchored. Monetary policy adjustments may be needed if price pressures broaden or if growth prospects weaken substantially.
Government measures to cushion the impact of higher energy prices should be timely, well‑targeted on households most in need and viable firms, preserve incentives to lower energy use and have clear expiry mechanisms.
Fiscal space is limited and actions are needed to safeguard debt sustainability and free resources to meet longer term spending challenges. Stronger efforts to contain and reallocate spending, improve public sector efficiency and enhance revenues are required, set within credible medium‑term country‑specific adjustment paths.
Effective monitoring, supervision, and robust regulatory policies are needed to address financial stability risks given stretched valuations in financial markets and growing interconnections between banks and non‑bank financial institutions.
Agreements to ease trade tensions and deepen trade relations would improve policy certainty and strengthen the prospects for sustainable growth. New export restrictions in response to supply disruptions should be avoided, as these could exacerbate supply shortages and push up prices.
Policies that improve domestic energy efficiency and lower reliance on imported fossil fuels over the medium-term are a priority. These can help lower exposure to future geopolitical tensions, as well as mitigate costs for households and businesses.
OECD Economic Outlook, Interim Report March 2026
Testing Resilience
Note: Difference from December 2025 OECD Economic Outlook in percentage points, based on rounded figures. World and G20 aggregates use moving nominal GDP weights at purchasing power parities (PPPs). Revisions to PPP estimates affect the differences in the aggregates. Based on data available up to 23 March 2026.
1. The European Union is a full member of the G20, but the G20 aggregate only includes countries that are also members in their own right.
2. Spain is a permanent invitee to the G20.
3. Fiscal years, starting in April.
Source: OECD Interim Economic Outlook 119 database; and OECD Economic Outlook 118 database.
Note: Difference from December 2025 OECD Economic Outlook in percentage points, based on rounded figures. The G20 aggregate uses moving nominal GDP weights at purchasing power parities (PPPs). Revisions to PPP estimates affect the difference in the aggregate. Based on data available up to 23 March 2026.
1. The European Union is a full member of the G20, but the G20 aggregate only includes countries that are also members in their own right.
2. Spain is a permanent invitee to the G20.
3. Fiscal years, starting in April.
Source: OECD Interim Economic Outlook 119 database; and OECD Economic Outlook 118 database.
Note: Difference from December 2025 OECD Economic Outlook in percentage points, based on rounded figures. The G20 advanced economies aggregate uses moving nominal GDP weights at purchasing power parities (PPPs). Revisions to PPP estimates affect the difference in the aggregate. Core inflation excludes food and energy prices. Based on data available up to 23 March 2026.
1. The European Union is a full member of the G20, but the G20 aggregate only includes countries that are also members in their own right.
2. Spain is a permanent invitee to the G20.
Source: OECD Interim Economic Outlook 119 database; and OECD Economic Outlook 118 database.