The Organisation for Economic Co-operation and Development released its interim economic outlook this week, assessing how the global economy has responded to the military conflict that began in late February. The Paris-based body indicated that economic growth has remained more stable than anticipated when hostilities commenced, contrary to initial concerns about widespread disruption.
Several factors have helped cushion the economic impact of constrained Gulf oil supplies, according to the OECD. These include the strategic release of global oil reserves, a notable reduction in energy imports by China, and increased reliance on alternative fuel sources such as coal. Despite these mitigating measures, the organization cautioned that recent upticks in oil and gas prices present ongoing risks for the months ahead.
OECD Secretary General Mathias Cormann emphasized that while the economy has absorbed recent shocks better than expected, underlying vulnerabilities persist. He highlighted concerns about declining energy inventories, shrinking fiscal space among governments, and rising financing costs. Government bond yields in several major economies have reached their highest levels in 15 years or more, leading to elevated debt-servicing expenses for governments already facing budgetary pressures. These trends have prompted broader warnings from international financial institutions about the need for policy action on government debt levels.
Regarding growth forecasts, the OECD upgraded its projection for global economic expansion to 2.9% for 2026, a modest increase from its June estimate. However, it marginally reduced its forecast for the following year to 3%. The organization identified additional economic risks, including the potential for resumed oil supply disruptions and the anticipated strong El Niño weather system, which could negatively affect agricultural production and food costs.
For the United Kingdom specifically, the OECD significantly revised its inflation projection downward to 3.1% for 2026. Growth forecasts for the UK improved to 1.1%, attributed in part to recently announced government support measures, though projections remain below prior-year performance levels.
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