OECD warns of global slowdown as U.S.-Iran war stymies economic growth prospects
The Organisation for Economic Cooperation and Development has slashed its global growth outlook, warning that the economic damage from the U.S.-Iran war could dramatically worsen
The Organisation for Economic Cooperation and Development has slashed its global growth outlook, warning that the economic damage from the U.S.-Iran war could dramatically worsen unless a durable peace settlement is reached quickly. In its June Economic Outlook, the OECD said global growth is now expected to slow from 3.4% in 2025 to 2.8% in 2026, before recovering to 3.1% in 2027 — should the current energy price shock start easing by the middle of this year. But that's assuming a time-limited disruption scenario in which a peace agreement is reached and current disruptions to the Strait of Hormuz are swiftly resolved, said Stefano Scarpetta, the OECD's chief economist.
A worse scenario, in which the disruptions to shipping and energy infrastructure continue well into 2027, would see global growth fall sharply to just 2.1% in 2026, and 1.8% in 2027. That would tip some economies into, or close to, recession, Scarpetta warned. watch now The OECD's study explores how the Strait of Hormuz shutdown, coupled with energy infrastructure damage throughout the Gulf, has sent energy prices soaring, and pushed up the costs of fertilizers and other key industrial inputs. It noted how the consequences of the war between the U.S. and its allies and Iran are likely to be felt for some time, even after any resolution is found.
Scarpetta told CNBC's "Squawk Box Europe" on Wednesday that the impact is "very different across the board" for different countries, even in the OECD's more benign scenario. He noted that while energy shortages would weigh heavily on Asian economies, countries like Japan and South Korea have large reserves and can withstand a lack of oil and gas for some time. In contrast, other nations, such as India, are now rationing the use of gas. Scarpetta said that a durable settlement to the current conflict would not only bring relief to the region but also "lay the groundwork for a resolution to the disruptions it has caused to the global economy." "The longer the disruptions last, the larger the economic and social costs become," he said in the report.
In the worse-case scenario, global inflation is expected to rise by 0.4 percentage points in 2026, and 1.3 percentage points in 2027. Stock Chart Icon Stock chart icon Brent crude.
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