OECD Warns of Global Growth Slowdown in 2026

The global economy is expected to slow significantly in 2026 before recovering modestly the following year, according to new projections from the Organisation for Economic Co-operation and Development (OECD), which cautioned that the outlook remains heavily dependent on geopolitical developments and stability in energy markets.

The OECD forecasts global economic growth to ease from 3.4% in 2025 to 2.8% in 2026, before rebounding to 3.1% in 2027, assuming a lasting resolution to current geopolitical tensions and a stabilization in global energy prices.

However, the organization warned that a more adverse scenario, characterized by prolonged disruptions and continued volatility, could significantly weaken economic activity worldwide and increase social and financial pressures across both advanced and developing economies.

Under its downside scenario, the OECD estimates that global growth could fall to 2.1% in 2026 and further to 1.8% in 2027 if current disruptions persist through the end of the forecast period.

Such an outcome would leave several economies either in recession or dangerously close to it, while contributing to rising unemployment, weaker investment activity and deteriorating consumer confidence.

The organization stressed that the economic costs of prolonged instability would extend beyond growth figures, creating broader social challenges and placing additional strain on public finances.

The OECD also warned that inflationary pressures would intensify under a prolonged-disruption scenario.

Global inflation could increase by approximately 0.4 percentage points in 2026 and 1.3 percentage points in 2027, driven primarily by higher commodity and energy prices. While weaker consumer demand may partially offset some of these pressures, the organization expects inflation to remain above previously anticipated levels.

Conversely, a lasting settlement of geopolitical tensions and a more substantial decline in energy prices could allow core inflation to return closer to central bank targets in many economies by the end of 2027.

According to the OECD, developing and emerging economies would bear the brunt of sustained energy market disruptions due to their heavy dependence on imported fuel, the larger share of food and energy in household spending, and more limited fiscal resources.

Many of these countries also face vulnerabilities linked to weaker social safety nets, constrained public finances and greater sensitivity to currency fluctuations.

The organization warned that higher energy import costs could widen external deficits across commodity-importing emerging markets, increasing pressure on foreign exchange reserves and external financing conditions.

The report highlighted a growing connection between energy security and future technological investment, particularly in artificial intelligence.

The OECD noted that continued disruptions to energy supplies could undermine investment in AI-related infrastructure, which depends heavily on reliable energy availability and semiconductor production. Supply chains for these technologies, the report added, often rely on specialized inputs connected to energy-producing regions, including Gulf economies.

As a result, the organization argued that accelerating investment in alternative energy sources and reducing dependence on imported fossil fuels has become more urgent than ever to enhance resilience against future energy shocks.

Despite the risks, the OECD identified several factors that could support stronger-than-expected growth.

The adaptability of businesses and their ability to adjust to economic shocks could help sustain investment and economic activity, particularly in 2027. The organization also noted that improvements in productivity, supply-chain resilience and technological innovation could contribute to a more favorable outlook.

At the same time, policymakers are closely watching developments in U.S. trade policy, with the OECD warning that any additional tariff measures could have direct implications for global trade flows, economic growth and policy uncertainty.

With energy markets, geopolitical tensions and trade relations all playing pivotal roles, the OECD’s latest outlook underscores the fragile balance facing the global economy as it enters a period of heightened uncertainty and structural transformation.