OECD: Iran War Eliminates World Economic Growth Opportunity, Inflation Threatened to Rise

JAKARTA - Global economic growth opportunities to grow stronger in 2026 are almost gone after the Iran war triggered a surge in energy prices and disrupted shipments through the Strait of Hormuz. Arab News on Friday, March 27 reported, the Organization for Economic Cooperation and Development (OECD) assessed that the conflict in the Middle East had eliminated the opportunity to revise the world's growth and opened the threat of higher inflation.

The OECD estimates global gross domestic product growth will slow from 3.3 percent last year to 2.9 percent in 2026, then rise slightly to 3 percent in 2027. According to Arab News, before the war broke out, the world economy was actually on a stronger track than expected. In fact, there are early indications that global growth in 2026 could be revised up by about 0.3 percentage points. However, those opportunities are now eroded by the impact of the conflict.

OECD head Mathias Cormann said uncertainty about the duration and magnitude of the conflict meant the downside risks remained large. That is, growth could be lower, while inflation could be higher than current projections.

The OECD compiled the projection on the assumption that disruptions in the energy market will gradually subside and oil, gas, and fertilizer prices will start to fall from mid-2026. However, in a worse scenario, global growth could be 0.5 percentage points lower in the second year of shocks, while inflation could be 0.9 percentage points higher.

G20 inflation is now expected to reach 4 percent in 2026, or 1.2 percentage points higher than the previous projection, before falling to 2.7 percent in 2027.

Arab News also wrote that the Iran war complicated the global trade situation, which was previously burdened by US tariff policies. Although US bilateral tariffs decreased after the Supreme Court's ruling, the overall effective tariff rate is still much higher than before 2025.

For the US, economic growth is projected to slow from 2 percent in 2026 to 1.7 percent in 2027, while headline inflation is expected to reach 4.2 percent in 2026. China is projected to grow 4.4 percent in 2026 and 4.3 percent in 2027. The euro area is expected to grow only 0.8 percent in 2026 before rising to 1.2 percent in 2027. Japan is projected to grow 0.9 percent in 2026 and 2027.

Saudi Arabia is still projected to grow 4 percent in 2026, but the 2027 projection was lowered by 0.3 percentage points to 3.6 percent.

The OECD asked central banks to remain vigilant. Governments are also asked to ensure that assistance to households is truly targeted and time-limited.