Source: Sharecast
In its first Economic Outlook report of the year, the OECD recommended that monetary policymakers “remain vigilant and attentive to shifts in the balance of risks around economic and financial developments” to ensure that underlying inflation pressures are contained.
It said that temporary spikes in inflation due to the energy price shock “can be looked through” so long as longer-term inflation forecasts remain in check.
The OECD lowered its forecast for 2026 gross domestic product growth to 2.8%, down from 3.4%, due to inflationary pressures stemming from the conflict in the Persian Gulf.
“The conflict in the Middle East has become the dominant force shaping the global economic outlook,” the Economic Outlook said.
“Energy prices and the prices of other key agricultural and industrial inputs produced in the Persian Gulf economies have soared since February as production and exports have been curtailed. This has been pushing up inflation, putting pressure on real incomes and economic growth.”
The OECD left its 3.1% growth projection unchanged, predicting that the disruptions to infrastructure and transport routes by the conflict would prove relatively short-lived.
However, it warned that, if broader disruptions last well into next year, it would have “much longer-lasting negative consequences”.
“In the prolonged disruption scenario, impacts would vary across regions, with energy‑importing Asian economies particularly exposed given their reliance on supplies from the Gulf,” the OECD said.
“More broadly, higher energy prices, supply shortages, tighter financial conditions and weaker confidence would weigh on activity worldwide. Inflation would also intensify, rising by around 0.4 percentage points in 2026 and 1.3 percentage points in 2027 – creating difficult trade-offs for policymakers, especially central banks.”
