The OECD raised its 2026 global growth forecast to 2.9 percent on Wednesday, up from 2.8 percent in June, saying the world economy has absorbed the Iran war oil shock better than expected, while warning that a longer conflict could still cut growth to 2.3 percent next year.
The interim Economic Outlook, published in Paris, credits two factors. First, the AI investment boom in the United States and in economies making chips and electronics for data centers, which has offset weakness in energy-importing countries. Second, an assumption that energy prices ease in line with futures markets next year, with Brent crude projected to peak at an average $105 per barrel in the final quarter of 2026.
Stefano Scarpetta, the OECD chief economist, put it plainly in the report presentation. We are facing a prolonged disruption, and yet the economy has performed better, he said. The June forecast had assumed an earlier resolution to the US-Iran conflict and correspondingly lower energy costs, an assumption the war has since falsified.
The oil market itself has been whipsawing. Brent spiked past $106 on Monday after President Trump rejected an Iranian proposal to reopen the Strait of Hormuz, then eased back below $103 as data from analytics firm Kpler showed exports recovering to just over 4 million barrels per day this month, after a slump to 2.4 million bpd in August, the lowest since at least 2013. Admiral Brad Cooper, head of US Central Command, said the volume of crude, cargo and LNG moving in the past two weeks was the highest in six months.
Commodity analysts caution that the buffer is thinning. Vivek Dhar, head of commodities at CBA, estimated that the closure of the East-West pipeline has cut the runway before global oil and refined product inventories deplete from 15 to 20 weeks down to 5 to 10 weeks, which increases pressure on Washington to reach some arrangement with Tehran. The OECD baseline assumes that pressure resolves without a full rupture.
Inflation and rates
Inflation across G20 economies is now expected to average 4.1 percent this year, up from 4 percent in the previous estimate, and to run hotter in 2027 than previously forecast. The OECD expects central banks to raise rates further, though it expects the moves to stay modest because there is limited evidence that higher energy costs are spilling into broader price pressures or wage growth.
The European Central Bank has already moved, raising its benchmark rate by a quarter point to 2.25 percent this month, its first hike since 2023, explicitly to counter war-driven energy inflation. The Federal Reserve, which delivered hawkish guidance last week, is widely expected to hike again by December, and bond markets are pricing a better-than-even chance of an October move.
| Indicator | 2026 | 2027 |
|---|---|---|
| Global GDP growth | 2.9 percent | 3.0 percent |
| G20 inflation | 4.1 percent | hotter than earlier forecast |
| Brent crude assumption | peak $105 per barrel, Q4 | easing with futures |
| Downside scenario | 2.9 percent | as low as 2.3 percent |
The downside case
The warning scenario combines three pressures the OECD says could reinforce each other: oil staying elevated through 2027, an El Nino weather pattern disrupting harvests and lifting food prices, and falling equity markets alongside rising bond yields. In that combination, growth could slow to as low as 2.3 percent next year and force larger rate increases than the OECD currently assumes.
Bond markets are already showing strain. The 10-year US Treasury yield topped 5.2 percent after a poorly received auction and hot PMI data, its highest level since the financial crisis era. French debt risk premium spiked to its widest since the euro zone debt crisis, and German bonds could come under pressure after the Merz government suffered its worst election result since 1949.
Equity markets offered a mixed picture on Monday. Asian shares edged higher as chipmakers gained on continued AI demand, with Japan closed for the Silver Week holiday keeping volumes thin. European futures pointed slightly up ahead of several central bank meetings on Thursday, including the Swiss National Bank, Sweden Riksbank and Norges Bank, all expected to hold. US index futures were weaker after the Iran rejection.
The AI divide
Underneath the aggregate numbers, the report describes a split economy. Countries plugged into the AI buildout, whether as chipmakers, power suppliers or data center hosts, are growing through the shock. Countries importing most of their energy and exporting little to the AI supply chain are absorbing the full cost of $100 oil. The divide shows up in equity markets, where chipmakers have led gains even as oil-linked indices fall, and in currency markets, where the dollar sits near its strongest level since July.
India illustrates the squeeze. The Reserve Bank held its repo rate at 5.25 percent this month, citing the oil shock and a weak rupee, and cut its growth forecast for the coming fiscal year to 6.6 percent. The World Bank separately cut its global forecast to 2.5 percent on a different methodology, underscoring how wide the range of estimates has become.
For the OECD, the baseline is resilience. For the markets, the question is whether the assumptions behind that baseline, an oil peak this quarter and gradual easing after, survive contact with the next round of strikes or the next failed auction.
The report also flags fiscal risks that predate the war. Deficit concerns are pressuring European bond markets independently of energy prices, and the OECD notes that governments spending more on defense and energy subsidies have less room to respond if growth slows. Fiscal space, thin before the conflict, is thinner now.