OECD Cuts Global Growth Forecast, Warns of Recession Risks

The OECD lowered its global growth forecast for 2026, warning that energy risks, inflation, and geopolitical tensions could weaken economic activity and raise recession risks. Mexico’s outlook was also revised down but the country is expected to see a recovery in 2027.

The Organization for Economic Co-operation and Development (OECD) lowered its global growth forecast for 2026, warning that the conflict in the Middle East has become the main factor shaping the global economic outlook through higher energy prices, inflationary pressures, and weaker demand.

In its latest Economic Outlook, the OECD projected global GDP growth to slow from 3.4% in 2025 to 2.8% in 2026, before recovering to 3.1% in 2027. The 2026 forecast represents a downward revision from the organization’s previous projection, reflecting the impact of energy market disruptions and broader geopolitical uncertainty.

The OECD says its central forecast assumes a time-limited disruption, with energy prices gradually easing from mid-2026 and Gulf energy production and exports returning closer to pre-conflict levels later in the year. Under this scenario, the global economy would avoid a deeper downturn, but growth would remain below the 2025 level.

However, the organization warns that a prolonged disruption could significantly weaken the global economy. If energy supply disruptions continue into 2027, global growth could fall to 2.1% in 2026 and 1.8% in 2027. The OECD says this scenario would leave a lasting impact on several economies, particularly those in Asia, the European Union, and developing countries that are more exposed to energy and food price shocks.

The OECD expects average headline inflation across G20 economies to rise from 3.4% in 2025 to 4.0% in 2026 before easing to 3.1% in 2027 under its central scenario. Higher energy prices are expected to affect household purchasing power, production costs, and monetary policy decisions.

The organization says central banks may face renewed pressure if inflation proves more persistent. While some economies had expected monetary easing to support activity, higher energy and input costs could limit the space for interest rate cuts or even require tighter policy in some markets.

In terms of uneven regional effects, the OECD says energy exporters may benefit from higher prices, while energy-importing economies face weaker purchasing power and higher costs. The European Union, Japan, and several emerging markets are expected to be more exposed to energy supply disruptions, while the United States could be partly cushioned by stronger energy exports.

For Mexico, the OECD projects growth of 0.8% in 2025 and 2026, followed by a recovery to 1.8% in 2027. The organization said Mexico’s outlook would be supported by previous policy rate reductions and resilient labor market conditions, although external uncertainty and slower global demand remain risks.

The report comes as the OECD has also urged Latin America to advance reforms that allow the region to better capitalize on rising demand for critical minerals. As previously reported by MBN, the organization called on Latin American countries to strengthen governance, improve regulatory frameworks, and support sustainable investment in critical minerals, which are increasingly relevant for energy transition technologies and global supply chains.

While the OECD’s Economic Outlook focuses on the short-term macroeconomic effects of energy disruptions, its previous analysis on critical minerals points to the need for longer-term strategies that reduce vulnerability, diversify supply chains, and strengthen the role of resource-rich economies in the global energy transition.

The OECD calls for governments to maintain credible fiscal plans while using targeted and temporary support measures where necessary. It also emphasized the need to improve energy efficiency and reduce dependence on fossil fuels to strengthen resilience against future shocks.

The report adds to growing concerns that geopolitical tensions, inflation, and energy disruptions could slow the global recovery. While the OECD’s baseline scenario still points to moderate growth, the organization warns that a longer conflict could significantly raise the risk of recession in several economies.