Global Economy Faces New Slowdown Amid Energy Price Shocks, OECD Warns

The global economy is facing a new slowdown, with the Organization for Economic Cooperation and Development (OECD) warning of significant risks stemming from energy prices and regional tensions. In its interim economic outlook released Wednesday, the OECD revised its growth forecasts, slightly increasing its 2026 projection to 2.9% from 2.8% but lowering its 2027 outlook from 3.1% to 3%.

The report noted that the global economy has so far weathered the energy shock from the Middle East conflict better than expected, supported by oil reserves, increased non-Gulf supply, government aid, and robust AI-related investments. However, energy prices remain a primary threat, with disruptions in the Gulf region leading to higher oil and gas costs, impacting fuel, transportation, and production expenses, and potentially fueling inflation.

The OECD cautioned that prolonged energy supply disruptions, especially if shipping through the Strait of Hormuz is restricted or alternative routes like Bab el-Mandeb face issues, could lead to further price hikes and shortages. They project oil prices to average around $105 per barrel in the fourth quarter of 2026, before falling to about $85 in 2027, contingent on energy market and Middle East conflict developments.

Inflation is also a concern, with the OECD forecasting headline inflation in G20 countries to rise from 3.4% in 2025 to 4.1% in 2026 before declining to 3.6% in 2027. This inflation, coupled with weak real income growth and high interest rates, is expected to dampen economic growth in the short term, with a gradual improvement anticipated in 2027 if energy prices fall as markets currently expect.

Conversely, AI-driven investments are providing a buffer, supporting global investment, production, and trade. However, the OECD warned that rising energy costs could also impact energy-intensive sectors, including some AI-related industries, if supply disruptions lead to long-term energy scarcity.

The report specifically highlighted the potential impact on Israel's economy, given its reliance on foreign trade, investment, and global markets. Global economic slowdowns and sustained high energy costs could affect Israeli businesses and consumers through increased transportation and production expenses and inflationary pressures limiting monetary policy options. A stabilization of energy markets and continued global tech investment could, however, support growth in 2027.