OECD cuts global growth forecast to 2.8% for 2026 as energy shock threatens recovery

The Organisation for Economic Co-operation and Development (OECD) has lowered its global growth outlook for 2026, warning that disruptions to oil and gas supplies caused by the escalating Middle East conflict are weighing heavily on the world economy and reviving inflation risks.

In its latest OECD Economic Outlook 2026, titled Under Pressure, the Paris-based institution projected global GDP growth to slow from 3.4% in 2025 to 2.8% in 2026, before recovering modestly to 3.1% in 2027. The downgrade reflects rising energy costs, supply chain disruptions, weaker business confidence and growing uncertainty linked to the conflict in the Persian Gulf region.

The OECD said the world economy entered 2026 in a stronger-than-expected position, supported by robust artificial intelligence (AI) investments, easing trade tensions and supportive financial conditions. However, the conflict in the Middle East has emerged as the dominant risk to global growth.

Energy disruption

According to the report, continued disruptions to shipping through the Strait of Hormuz and damage to energy infrastructure have significantly curtailed global energy supplies. Global oil supply fell by 13.5% between February and April 2026, while exports of liquefied natural gas (LNG) from the Gulf region have been severely disrupted due to damage to production facilities.

The OECD estimates that global gas supply is running about 15% below previous expectations, while shortages have also emerged in fertilisers, sulphur, helium and other industrial inputs critical to manufacturing and agriculture.

As a result, prices of crude oil, natural gas and fertilisers have surged, raising costs for businesses and consumers worldwide. The report noted that the sharp increase in commodity prices is already feeding into higher inflation and weakening consumer confidence.

Inflation risks return

The OECD expects G20 inflation to rise to 4% in 2026, up from 3.4% in 2025, before easing to 3.1% in 2027 as energy and food price pressures gradually subside.

Higher energy prices are also increasing transportation costs and disrupting trade flows. Vessel traffic through the Strait of Hormuz remains significantly below normal levels, while commercial flights across key Middle Eastern hubs have yet to fully recover. These bottlenecks are creating supply backlogs and raising costs across global supply chains.

India remains a bright spot

Despite the challenging global backdrop, India continues to stand out among major economies. The OECD projects India's economy to grow 6.3% in FY2026 and 6.4% in FY2027, making it one of the fastest-growing large economies globally.

The report also highlighted AI-related investment and trade as an important source of resilience, particularly across Asia. Strong spending on digital infrastructure and emerging technologies has helped offset some of the drag from geopolitical tensions.

Recession risks if conflict persists

The OECD warned that a prolonged disruption scenario would be far more damaging. If energy disruptions continue well into 2027, global growth could slow to 2.1% in 2026 and 1.8% in 2027, potentially pushing several economies into recession. Inflation would rise further, unemployment would increase and investment activity would weaken sharply.

The organisation urged governments to provide targeted support to vulnerable households rather than broad energy subsidies, while calling for stronger efforts to diversify energy supplies, improve energy efficiency and maintain open global trade channels.