OECD Cuts Global Economic Forecast for 2026; 2027 Could Face Recession

The Paris-based international organisation, the Organisation for Economic Co-operation and Development (OECD), has slashed its global economic growth forecasts for 2026. Conflicts in the Middle East, particularly between the United States and Iran, which disrupt the Middle East and the Strait of Hormuz, have damaged global growth prospects.

According to the ‘OECD Economic Outlook, Volume 2026 Issue 1’, under a ‘time-limited disruption scenario’, the world economy is expected to grow by only 2.8% throughout 2026, with a potential increase to 3.1% in 2027. This follows a global growth rate of 3.4% in 2025. In this scenario, energy prices are assumed to decrease gradually as progress is made towards a negotiable and lasting peace agreement, with energy production and trade in Gulf nations returning to pre-conflict levels from the third quarter of 2026 onwards.

While some countries, particularly in Asia, may face slight energy shortages, the use of strategic reserves and additional supplies from non-Gulf producers is expected to mitigate the shock. For G-20 nations, annual consumer price inflation is projected to rise to 4.0% in 2026 from 3.4% in 2025, before falling to 3.1% in 2027.

Regarding Indonesia, economic growth is forecast to be 4.7% in 2026 and 5.0% in 2027. Among G-20 nations, Indonesia is projected to be the second-highest grower, following only India.

However, the outlook for 2027 could become much bleaker if the Middle East war remains unresolved. A ‘prolonged disruption scenario’ suggests global growth would slow significantly to 2.1% in 2026 and just 1.8% in 2027. The OECD warns this could push several nations into or near a recession, accompanied by rising unemployment. Global inflation could rise by 0.4 percentage points in 2026 and 1.3 percentage points in 2027, driven by rising commodity prices.

Many Asian nations would be severely impacted due to their high exposure to Middle Eastern energy supplies. Consequently, policy interest rates are likely to rise by 50–75 basis points in most countries in 2022 to moderate inflationary pressures. Furthermore, prolonged disruptions to energy supplies could negatively impact AI investments due to the heavy reliance of key infrastructure, such as semiconductors, on energy availability and specific inputs from Gulf nations. Higher energy import costs could also widen external deficits in developing and commodity-importing nations, straining reserves and external funding conditions.