The OECD warns of a global slowdown as the war in Iran hampers growth prospects
The Organization for Economic Cooperation and Development has cut its global growth outlook, warning that the economic damage from the US-Iran war could be severe unless a strong peace solution is reached.
In its Outlook Economic Outlook, the OECD said global growth is now expected to slow from 3.4% in 2025 to 2.8% in 2026, before returning to 3.1% in 2027 – if the current energy price shock starts to subside by the middle of this year.
But that assumes a time-limited crisis situation where a peace agreement is reached and the current disruptions in the Strait of Hormuz are quickly resolved, said Stefano Scarpetta, the OECD’s chief economist.
The worst-case scenario, where disruptions to transport and energy infrastructure continue until 2027, would see global growth drop sharply to 2.1% in 2026, and 1.8% in 2027.
That could put the economy in, or close to, recession, Scarpetta warned.
An OECD study examines how the closure of the Strait of Hormuz, coupled with damage to energy infrastructure across the Gulf, has sent energy prices soaring, and increased the cost of fertilizers and other key industrial inputs. It noted that the consequences of the war between the US and its allies and Iran may be felt for some time, even after any decision is reached.
Scarpetta said that a long-term solution to the current conflict would not only bring relief to the region but also “lay the foundation for resolving the disruptions that have caused the global economy.”
“The longer the disruption continues, the greater the economic and social costs,” he said in the report.
In the worst-case scenario, global inflation is expected to rise by 0.4 percent in 2026, and 1.3 percent in 2027.
“Unemployment will rise and investment – including energy-consuming AI – will be much weaker, with increased risk of financial market inflation … and pressures from higher asset prices partially offset by weak final demand,” Scarpetta said.
“The effects may be global but may be most severe in developing economies with limited energy reserves, high shares of energy and food consumption at home, limited financial capacity and weak social safety nets, low private savings and fragile currencies.”
The recession will also pose a challenge to the world’s central banks, which are already facing weak growth and inflationary pressures, he added.
The crisis also highlights the vulnerability of the global economy to one region, and underscores the need to strengthen the resilience of supply chains and diversify energy supplies, the OECD report said.
“In the near term, measures to curb urgent demand and international coordination of strategic energy stocks may help mitigate some of the effects of supply shortages, but the need to invest more to remove dependence on fossil fuel imports is more urgent than ever.”
