OECD: Iran war puts global economy on two tracks
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- OECD released two-scenario projections, with the central case at 2.8% global growth in 2026 (vs. 2.9% projected pre-war in March) and a downside of 2.1% in 2026 and 1.8% in 2027 if the Iran war drags on, hitting Asian economies outside China and Persian Gulf output hardest.
- Stefano Scarpetta, the OECD's chief economist, called the Middle East conflict "the dominant force shaping the global economic outlook" and warned that the vulnerability to a single chokepoint shows the need to strengthen supply chain resilience.
- G20 inflation is projected to hit 4% this year before easing to 3.1% in 2027, with a prolonged war adding 0.4 percentage points this year and 1.3 points in 2027.
- The U.S. is projected to grow near 2% in 2026 — the strongest in the G7 — buoyed by "enormous AI-related investment" and resilient higher-income household spending, even as the rest of the world absorbs the energy shock.
- Major central banks are in "wait-and-see" mode, but the OECD says a prolonged conflict could force rate hikes of up to 0.75 percentage points in most economies to anchor inflation expectations, even as growth weakens.
- AI investment is exposed on three fronts — the power running data centers, chipmaking fed by the Middle East, and the trade routes hardware travels — and the OECD warns that persistent disruptions could weaken the very investment currently propping up growth.
- Fiscal policy would carry the burden of cushioning the economy in a prolonged conflict, but Scarpetta notes governments face little room to maneuver given debt, aging populations, and rising defense costs.
Why it matters: The OECD projects US growth near 2% as the strongest in the G7, powered by AI investment — but that same AI buildout depends on the Middle East energy and chip supply chains the war is disrupting, meaning the buffer cushioning the economy could itself become a casualty if the conflict drags on, with central banks forced to hike rates into a slowdown.
