The Organisation for Economic Co-operation and Development on Thursday downgraded its economic outlook for the eurozone, citing surging energy prices driven by the ongoing Middle East conflict.
In its latest report, the OECD reduced its 2026 growth forecast for the currency bloc by 0.4 percentage points to 0.8 per cent. Growth projections for its two largest economies, Germany and France, were also trimmed by 0.2 percentage points each to 0.8 per cent.
The organisation raised its inflation forecast for the eurozone by 0.7 percentage points to 2.6 per cent, while maintaining its global growth outlook at 2.9 per cent for the year.
According to the OECD, the spike in energy prices and uncertainty surrounding the Middle East conflict are expected to increase production costs and dampen demand, offsetting gains from strong technology-related investment, lower tariffs, and economic momentum carried over from 2025.
The report noted that global growth had been relatively resilient prior to the escalation of the conflict and could have been 0.3 percentage points higher in its absence. It assumes that energy disruptions may begin to ease from mid-2026 but warned that prolonged instability could further elevate inflation and weaken growth prospects.
The OECD also highlighted rising fertiliser costs, particularly urea prices, which have surged by over 40 per cent since mid-February, potentially impacting agricultural output in 2027.
In contrast, the United States is expected to outperform other regions, with its 2026 growth forecast revised upward by 0.3 percentage points to 2.0 per cent, before moderating to 1.7 per cent in 2027. Meanwhile, China is projected to record growth of 4.4 per cent this year and 4.3 per cent in 2027, supported by economic adjustments despite rising energy costs and reduced consumption subsidies.
To mitigate future shocks, the OECD urged countries to adopt policies that improve energy efficiency, reduce reliance on imported fossil fuels, and strengthen trade relations to enhance long-term economic stability.
