OECD Warns Middle East Conflict Slows Global Economic Growth
Recent analysis from the Organisation for Economic Co-operation and Development (OECD) highlights the significant impact the ongoing conflict in the Middle East is having on worldwide economic performance. The effects of the crisis have become immediately noticeable in various sectors, most notably in the form of increased energy and fertilizer prices. As the conflict continues, secondary repercussions such as heightened inflation, reduced consumer demand, and decreased economic confidence are being observed across global economies.
The OECD has developed two potential scenarios to assess the future course of the global economy in relation to the conflict. The first, a more positive projection, assumes a swift resolution and the reopening of critical supply routes such as the Strait of Hormuz. In this case, energy prices are expected to stabilize by mid-2026. Under these conditions, the OECD forecasts global economic growth to decline from 3.4% in 2025 to 2.8% in the current year, with a moderate recovery to 3.1% the following year.
For the Eurozone, the outlook under the optimistic scenario suggests a decrease in growth from 1.4% to 0.8% this year, followed by a slight increase to 1.2% next year. The United States is anticipated to experience a marginal decline from 2.1% to 2.0%, with a further dip to 1.8% projected for 2027. China, also affected by its substantial energy requirements, is expected to see its growth rate fall from 4.5% to 4.3% in the next year.
The second, more pessimistic scenario considers the possibility that the conflict persists well into 2027. In this event, the OECD expects global growth to drop more sharply, reaching just 2.1% this year and slowing further to 1.8% by 2027. Such a downturn could lead some economies perilously close to recession, according to OECD economists.
Germany's economic outlook is somewhat better than recent national predictions, with the OECD projecting a gross domestic product increase of 0.7% for this year and 1.1% for 2027. In comparison, recent estimates by local economic advisory councils were more conservative. Nevertheless, inflationary pressures are expected to rise in Germany, though the OECD report does not detail precise figures. The organization also critiques recent government measures, such as temporary fuel tax reductions, arguing these do not adequately support lower-income households and may undermine efforts to conserve energy.
The OECD notes that while Germany faces challenges from higher energy costs and inflation dampening real income growth, private consumption should benefit from increasing wages. Additionally, as global demand improves, German exports are projected to recover, with a shift in focus toward European markets over China. Fiscal measures, including a relaxation of debt limits and increased spending from special funds, are anticipated to have a supportive effect on the economy.
Despite these positives, the OECD identifies several areas where policy intervention is necessary. Improving the efficiency of public spending, broadening the tax base, and addressing the rising costs associated with an aging population are highlighted as priorities. The organization also emphasizes the urgent need to address skills shortages and accelerate infrastructure projects. These steps are viewed as essential not only for supporting economic growth but also for advancing the energy transition and reducing reliance on imported fossil fuels.
The OECD concludes that, regardless of how quickly the regional conflict is resolved, the global economy will likely continue to face challenges resulting from its consequences for some time to come.