The Organisation for Economic Co-operation and Development (OECD) has slightly raised its global economic growth forecast for the year to 2.9%, a 0.1-point increase from its June estimates. This upward revision is attributed to the resilience of economic growth in many countries, despite the uncertainties created by the conflict in the Middle East. The Paris-based group of 38 industrialised countries noted that broader financial conditions remain supportive.
The OECD cited sizeable oil inventories, additional supply from outside the Gulf economies, and discretionary government support measures as factors that have helped cushion the impact of the conflict on the global economy. Furthermore, massive investments in artificial intelligence have resulted in a boost to production and trade, which could lead to stronger growth than projected. However, global growth has slowed sharply from the 3.4% recorded last year.
The OECD trimmed its 2027 growth forecast by 0.1 percentage point to 3%. The group warned that governments have started raising interest rates to contain inflation pressures stemming from high oil and gas prices, which have sent diesel and other fuel costs to highs not seen in years. This has resulted in government bond yields reaching levels not seen since the global financial crisis of 2007-2008.
Rising bond yields underscore the need for enhanced efforts to contain and reallocate government spending, improve public-sector efficiency, and strengthen revenues to ensure longer-term debt sustainability. The OECD also warned of prolonged inflation if the Middle East conflict continues, with price increases in the G20 group of developing and emerging economies expected to be 4.1% overall this year.
The OECD identified potential weather-related supply shocks, including a very strong El Nino, as significant downside risks that could adversely impact agricultural production and add to rising food price pressures. The group's forecasts for individual countries reveal varying growth prospects. For South Africa, the OECD is forecasting growth of 1.2% in 2026 and 1.6% in 2027, which is somewhat lower than the global projection.
In contrast, the OECD expects the United States' GDP to expand by 2.2% this year, up 0.2 points from its June forecast. The eurozone is expected to see growth of 1%, also up 0.2 points. Japan's growth forecast was revised upward to 0.8%, while the forecast for the Chinese economy, the world's second-largest, was held steady at 4.5%. The OECD sees growth of 3.1% for the G20.
The OECD's revised forecasts reflect the complexities of the current global economic landscape. While some countries are expected to experience stronger growth, others face challenges due to the ongoing conflict and rising inflation pressures. The group's warnings highlight the need for governments to implement policies that promote debt sustainability and address the risks associated with the conflict.
Key points
- The OECD has raised its global economic growth forecast to 2.9% despite the ongoing conflict in the Middle East.
- The group's forecasts for individual countries reveal varying growth prospects, with South Africa expected to experience growth of 1.2% in 2026 and 1.6% in 2027.
- The OECD warned of prolonged inflation if the Middle East conflict continues, with price increases in the G20 group expected to be 4.1% overall this year.
