The Organisation for Economic Cooperation and Development (OECD) has issued a warning about the potential global economic impact of the ongoing conflict in the Middle East. The duration of the conflict could significantly influence global growth and inflation rates, with some countries potentially facing recession if the situation extends into the next year.

According to the OECD’s baseline scenario, if the conflict is resolved quickly, Gulf oil and gas production might return to pre-crisis levels by the third quarter. This would limit energy shortages primarily to Asia, with strategic reserves and alternative shipments helping to mitigate the impact. Under this scenario, global growth is expected to slow from 3.4% in 2025 to 2.8% in 2026, before recovering to 3.1% in 2027.

However, if the energy disruptions persist, the OECD projects a more severe slowdown, with global growth potentially dropping to 2.1% in 2026 and 1.8% in 2027. This would be reminiscent of major crises such as the 2008 financial crash or the COVID pandemic. Asian countries heavily reliant on Middle Eastern energy supplies are expected to be the hardest hit.

Higher energy prices could add 0.4 percentage points to global inflation in 2026 and 1.3 percentage points in 2027. This inflationary pressure might lead central banks to increase interest rates by 0.5 to 0.75 percentage points in the short term.

Regional Economic Outlooks

In the United States, stronger energy exports are anticipated to support growth, partially offsetting the negative effects of higher prices on household purchasing power. U.S. growth is projected to ease from 2.1% in 2025 to 2.0% in 2026 and 1.8% in 2027.

In Europe, the euro zone is expected to see growth slow from 1.4% to 0.8% this year, with a rebound to 1.2% next year. This is attributed to resilient labor markets and increased defense spending, which help counterbalance government budget cuts.

Britain’s growth is projected to slow to 0.9% this year, with a recovery to 1.1% in 2027 as global trade stabilizes and financial conditions improve.

China’s growth is expected to decelerate from 5.0% in 2025 to 4.5% in 2026 and 4.3% in 2027. Despite ample energy reserves that limit exposure to oil price spikes, a property slump continues to pose challenges.

Japan is likely to be among the hardest-hit by trade disruptions linked to the Gulf conflict. Growth is expected to slow from 1.1% in 2025 to 0.6% in 2026, before slightly improving to 0.8% in 2027. The OECD emphasizes the need for Japan to establish a clear plan to manage public finances as interest rates rise.

Original reporting: Appleton, WI News Feed (HLL/CB) — read the source article.