The euro zone is expected to take a hit in 2026 from soaring energy prices caused by the war in the Middle East, with the OECD now forecasting weakened growth and reinvigorated inflation amid great uncertainty surrounding the conflict.
Hostilities sparked by attacks by the United States and Israel against Iran in late February have led to a surge in prices for oil, gas and other products such as fertilizer.
They have also disrupted supply chains, causing “the worst disruptions in the last 80 years” for world trade, warned the Director General of the WTO, Ngozi Okonjo-Iweala, on Thursday.
As a result, the Organization for Economic Cooperation and Development estimates that costs will rise and demand will fall, offsetting strong AI-related investments or falling effective U.S. tariff rates.
The eurozone would suffer one of the biggest blows, according to its updated global economic forecasts.
Its growth would stand at 0.8%, or 0.4 percentage points less than expected in the December OECD forecast. Germany and France would reach 0.8% (-0.2 points), Italy 0.4% (-0.2) and Spain 2.1% (-0.1).
European growth should rise to 1.2% in 2027 thanks to defense spending.
– Gradual attenuation –
Concerning inflation, the OECD significantly raises its forecast for 2026, by 0.7 points to 2.6%. Inflation would then decelerate to 2.1% in 2027.
More favorably, however, underlying inflation, which excludes very volatile elements such as energy prices, would remain “moderate”: 2.3% (+0.2 points).
The OECD expects energy market disruptions to gradually ease from mid-2026. However, it underlines the unpredictability of the war, whose impact on growth and inflation could be amplified if it continues.
“If the disruptions continue, we could also see significant energy shortages appear which would further slow down growth,” she notes.
The organization cites in particular the prices of urea (one of the main nitrogenous mineral fertilizers) which have increased by more than 40% since mid-February. “If this upward trend continues, it will adversely impact crop yields and global food prices in 2027.”
– American growth increased –
On Wednesday, oil prices fell after the announcement of Iran’s unblocking of the Strait of Hormuz, a key route for oil trade, for ships deemed “non-hostile”, and the transmission of an American peace plan to Tehran.
But they rose again on Thursday, with Iran assuring that it had no intention of negotiating, when Donald Trump repeated that talks were indeed underway.
For the global economy, the OECD confirms its forecast of growth of 2.9% in 2026, lower than in 2025 (3.3%). It would increase timidly to 3% the following year (-0.1 point).
However, she emphasizes that global growth held up “well” before the war, and that her forecast could have been raised “by around 0.3 points” without the war escalation.
In this darkened context, the United States would do well this year, marked by high-stakes midterm elections in November.
After growth of 2.1% in 2025, the forecast for the American economy is raised by 0.3 points to 2%. It then drops to 1.7% in 2027 (-0.2), “the strong expansion of AI-related investment being partially offset by a slowdown in the increase in real income and consumer spending.”
Inflation in the United States would increase by 1.2 points to 4.2%. It would mark time in 2027, at 1.6% (-0.7 points).
Chinese growth is still expected at 4.4%, then 4.3% in 2027. As slowing factors, the OECD cites the end of public subsidies for consumption, the increase in the prices of energy imports, the adjustment of the real estate sector and the measures against “involution” which will slow down business investments.
Faced with this energy price shock, the OECD calls on central banks to “remain vigilant”, not ruling out an increase in key rates “if price tensions become widespread or if growth prospects deteriorate significantly”.
The Secretary General of the OECD, Mathias Cormann, also told the press that the measures decided by governments to cushion the shock must be “targeted” given their “significant budgetary cost”.