(REUTERS) The escalating conflict in the Middle East has knocked the global economy off a stronger growth path, the OECD warned on Thursday (March 26) as a near-halt in energy shipments through the Strait of Hormuz threatens to push inflation sharply higher.

The Paris-based Organisation for Economic Cooperation and Development said the global economy had been on course for stronger-than-expected growth before the war in Iran erupted, but that prospect has now all but disappeared.

Global GDP growth is now projected to ease from 3.3% last year to 2.9% in 2026 before edging up to 3.0% in 2027, as an energy price surge and the unpredictable nature of the conflict offset tailwinds from strong technology-related investment, lower effective tariff rates and momentum carried over from 2025.

The projections in the OECD's interim Economic Outlook are conditional on a technical assumption that energy market disruption moderates over time, with oil, gas and fertiliser prices declining gradually from mid-2026 onwards.

The 2026 projection is unchanged from the OECD's December forecast, but preliminary indications since then had suggested global GDP growth could have been upwardly revised by around 0.3 percentage points in 2026 had the conflict not escalated, a revision that has been entirely erased by the impact of the fighting.

With energy prices now soaring, G20 inflation is projected to be 1.2 percentage points higher than previously expected in 2026 at 4.0%, before easing to 2.7% in 2027.

In an adverse scenario in which energy prices peak higher and stay elevated longer, global growth would be 0.5 percentage points lower by the second year of the shock and inflation would be 0.9 percentage points higher, the OECD said.

Posted by: Alma Angele/NET25 News