The OECD group of industrialized nations on Wednesday raised its global growth forecast for 2026 to 2.9%, up 0.1 percentage points from its June estimate, even as the war in the Middle East continues to stoke inflationary pressures. The Paris-based Organization for Economic Cooperation and Development, a 38-member forum, said investment in artificial intelligence is helping drive growth, but warned that the conflict is fueling inflation.

The OECD said growth remained "resilient" in 2026 and that "broader financial conditions remain supportive." It added that the impact of the Middle East war was being softened by other factors. "Sizeable oil inventories, additional supply from outside the Gulf economies and discretionary government support measures all helped to cushion the impact on the global economy," the group said. It noted that investments in artificial intelligence could result in "stronger growth than projected," but cautioned that growth could still slow if those investments do not pay off as expected.

However, global growth has dropped from last year's 3.4%, and the OECD also lowered its 2027 forecast by 0.1 percentage points to 3%. Governments around the world have begun raising interest rates to cushion inflationary pressures sparked by rising oil and gas prices. The OECD stressed that the outlook depends on whether a lasting resolution to the conflict is found, as continued fighting would likely lead to higher inflation. The crisis has also led to an increase in government bond yields.

"Rising bond yields underline more than ever the need for enhanced efforts to contain and reallocate government spending, improve public-sector efficiency and strengthen revenues to ensure longer-term debt sustainability and maintain the ability of governments to react to significant shocks," the OECD said. It added that other threats include weather-related risks like the El Nino pattern, which could cause supply bottlenecks and high food costs. The organization's latest projections highlight the fragile balance between technological optimism and geopolitical instability.

Source: www.dw.com