While the AI-led investment boom is helping the global economy hold up marginally better than expected, the biggest story of 2026 has been the energy shock stemming from the ongoing Iran war, a crisis that is further consolidating its hold further, weighing on the outlook for 2027.
The above-mentioned finding emerged in the OECD’s (Organisation for Economic Co-operation and Development) interim economic outlook, that further stated that after 2025’s 3.4% GDP growth, the global economy is set to slow to 2.9% growth in 2026, slightly better than the 2.8% forecast in June.
“Heading into 2027, the commodity price shock caused by the Middle East conflict is expected to weigh on momentum, and the OECD forecasts global growth picking up to only 3.0%, from 3.1% in June,” OECD said.
According to the global watchdog, the only positive aspect of this year has been the strong spending on AI infrastructure, including data centres and semiconductors, which has boosted growth in the United States and increased technology exports from Japan and Korea.
However, the ongoing energy market jitters, extreme weather related to a strong El Nino, surging government bond yields and disappointing AI investment returns have the potential to reduce global growth by 0.7 percentage points in 2027, while raising global inflation by 1.1 percentage points.
In the OECD’s baseline outlook, inflation in G20 economies is to be at 4.1% in 2026, up from the 4.0% forecast in June.
The global watchdog also raised its 2027 forecast to 3.6%, from 3.1% in June, which it said could force central banks to adjust interest rates if price pressures broaden out or growth falters.
In the United States, the world’s largest economy, GDP growth will be at 2.2% in 2026 and 2.1% in 2027, both upgrades from June, as heavy AI-related investment offsets weaker consumer spending.
Uncle Sam’s inflation meter is projected to hit 3.6% in 2026, before easing to 2.6% in 2027, with tariffs and higher energy prices weighing on household purchasing power and business costs.
China’s growth, on the other hand, is expected to slow to 4.5% this year and 4.2% in 2027, unchanged from the OECD’s estimates from June, as Beijing’s curbs on excess industrial capacity weigh on investment even as consumption faces a gradual pick up in inflation.
Eurozone growth will hold at 1.0% in both 2026 and 2027, with higher energy prices and interest rates weighing on activity before new defence spending initiatives provide support.
The continent’s inflation will be at 3.0% in 2026 and 2.9% in 2027, driven partly by a jump in natural gas prices as European storage levels sit at 15-year lows heading into the winter heating period.
“Japan’s economy is expected to grow 0.8% in 2026 and 0.7% in 2027, with rising policy rates and costlier energy imports offsetting strong business investment. Unlike other major economies, Japan’s inflation is seen accelerating to 2.6% in 2027 from 1.8% this year, reflecting a tight labour market and strong wage growth,” OECD noted.