The Organisation for Economic Co-operation and Development has published its latest Economic Outlook, warning that the evolving conflict in the Middle East has become the main force shaping global prospects through an energy shock that is lifting inflation and weakening growth. Because the duration of the disruption is uncertain, the report sets out two scenarios: a time-limited disruption in which Gulf energy production and trade progressively return to pre-conflict levels from mid-2026, and a prolonged disruption in which current disruptions persist well into 2027 with broader and more durable effects. Under the time-limited scenario, global growth slows from 3.4% in 2025 to 2.8% in 2026 before rising to 3.1% in 2027. Under the prolonged disruption scenario, global growth falls to 2.1% in 2026 and 1.8% in 2027, with the OECD highlighting sharper effects in Asia, Europe and developing economies most exposed to energy and food price shocks. OECD growth would slow to 0.9% in 2026 and 0.5% in 2027, compared with 1.5% and 1.7% under the time-limited case. In the time-limited scenario, G20 consumer price inflation rises to 4.0% in 2026 from 3.4% in 2025 before easing to 3.1% in 2027, while inflation would rise significantly higher under a prolonged disruption. The Outlook says central banks should remain vigilant, but a supply-driven rise in prices need not trigger a policy response if inflation expectations stay well anchored. It adds that a response may be needed if broader price pressures intensify or growth weakens significantly. Governments are urged to keep any energy price relief targeted and temporary, strengthen efforts to ensure long-term debt sustainability, and accelerate energy supply diversification and efficiency measures.

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