OECD Sees Modest Growth Ahead, Raises Inflation Forecast

Global GDP growth is expected to hold at 2.9% in 2026 before rising slightly to 3.0% in 2027, driven by strong tech investment and easing tariffs, according to the latest OECD Economic Outlook. However, the ongoing Middle East conflict continues to weigh on growth and introduce uncertainty, with projections assuming a temporary energy market disruption and price relief from mid-2026. Inflation forecasts were revised upward, with G20 advanced economies facing 4.0% headline inflation in 2026, 1.2 percentage points higher than previously anticipated, before moderating to 2.7% in 2027. Core inflation is projected to decline from 2.6% to 2.3% over the same period. By region, US growth is set to slow from 2.0% in 2026 to 1.7% in 2027, with inflation peaking at 4.2% this year. China’s growth is expected to ease to 4.4% in 2026 and 4.3% in 2027, while the Eurozone faces a sluggish 0.8% in 2026 before recovering to 1.2% in 2027. Japan’s growth remains modest at 0.9% for both years.

The IMF raised its global growth forecast to 3.3% from 3.1% this year, and warned that major risks are building. The upgrade reflects resilient activity, strong labour markets and heavy investment in new technologies, especially artificial intelligence. However, the IMF cautioned that these same forces could become sources of instability. Rapid AI-driven investment, particularly in North America and Asia, is supporting growth and equity markets, but if productivity gains fail to materialise, it could trigger sharp market corrections and weaken household wealth. Trade and geopolitical risks also remain elevated. While the impact of past tariffs is expected to fade, new disputes or a shift toward protectionism could hurt corporate profits and keep inflation pressures alive. Regionally, the fund expects solid growth in the US (2.6% in 2026), modest expansion in the Euro Area (1.3%), and stronger momentum in China (4.5%), underscoring an uneven but still resilient global outlook.

The OECD expects global growth to ease from 3.2% in 2025 to 2.9% in 2026 before a slight rebound to 3.1% in 2027, as tariffs, weak trade and geopolitical uncertainty weigh on activity. In the US, growth is projected to slow to 2.0% in 2025 and 1.7% in 2026, before edging up to 1.9% in 2027 amid softer job gains and fiscal tightening. China is forecast to expand 5% this year, weakening to around 4.4%–4.3% in 2026–27 as consumption remains subdued and real estate continues to contract. The Euro Area is expected to grow modestly at around 1.3% in 2025, easing to 1.2% in 2026 and rising to 1.4% in 2027 as domestic demand gradually improves, while UK growth is seen slowing from 1.4% in 2025 to 1.2% in 2026, before a slight pickup to 1.3% in 2027 due in part to budget tightening. Japan is projected to expand 1.3% in 2025, before slowing to 0.9% per annum in 2026-27 amid weaker external demand.