OECD warns Middle East war risks global economic growth

The OECD on Tuesday warned that the Middle East war has dampened global economic growth prospects and that the impact will be more severe if an effective ceasefire is not reached by 2027.

The Paris-based Organisation for Economic Co-operation and Development (OECD) said in its quarterly update that it was cutting its global growth forecast for 2026 to 2.8 percent from 2.9 percent previously, assuming oil and gas exports from the Gulf region return to pre-conflict levels in the third quarter.

However, the OECD warned that global growth could slow further to 2.1 percent in 2025 if the Middle East war drags on into next year, well below the 3.4 percent annual average growth seen between 2013 and 2019 before the COVID-19 pandemic.

"The longer the disruptions last, the greater the economic and social costs," said OECD chief economist Stefano Scarpetta in the report.

He stressed that many countries risked falling into recession and that a decline in investment spending, including on energy-intensive artificial intelligence (AI), could lead to rising unemployment.

Sustained high prices for energy, fertilizers and other major hydrocarbon products from the Persian Gulf would put particular pressure on developing countries where "energy and food account for a larger share of household consumption."

Even if the war triggered by attacks on Iran by the US and Israel in late February ends in the coming weeks, the OECD predicted that global inflation would rise to 4.0 percent this year from 3.4 percent last year.

In this "short-term disruption scenario," the OECD forecast that the United States would slow to 2.0 percent this year after reaching 2.1 percent last year, and further slow to 1.8 percent next year.