Conflict's Economic Fallout
OECD and EBRD cut global growth forecasts as Middle East conflict fuels inflation.
The OECD warned that the Middle East war is already denting global growth and that the outlook could worsen further if an effective ceasefire is not reached before 2027. It forecasts world growth at 2.8% this year on a rebound in Gulf oil and gas exports, but says growth could slow to 2.1% if the conflict continues into next year. The EBRD also cut its regional growth forecasts, projecting 3.1% aggregate growth in 2026 versus 3.4% in 2025, with a partial recovery to 3.6% in 2027. It links the downgrade to higher oil and gas prices, disruptions to shipping through the Strait of Hormuz, and a widening gap in energy costs that has weakened competitiveness and momentum across multiple economies. The EBRD said inflation has reignited across its regions, with average inflation rising to 6.4% between February and April 2026 as energy and food costs climb and some currencies weaken. The bank also noted the energy price shock is penalizing Europe more than the United States, including through higher electricity prices tied to greater dependence on hydrocarbon imports.
Key Points
The EBRD said regional GDP growth slowed to 2.9% year-on-year in the first quarter of 2026, citing weaker-than-expected performances in several large economies including Egypt, Kazakhstan, Romania, Turkey and Ukraine.
In comments accompanying its report, EBRD Chief Economist Beata Javorcik warned: “The conflict in the Middle East has delivered a new shock to regions already navigating weakness in manufacturing industries and fragile fiscal positions.”
The EBRD attributed the renewed inflation rise not only to higher energy and food costs, but also to “currency depreciation against the US dollar” that added further pressure in some economies.
The EBRD said its latest outlook report—titled “Strai(gh)t talk”—states, “Electricity prices in Europe are also much higher than in the United States,” reinforcing the message that Europe’s greater hydrocarbon import dependence is translating into higher power costs.
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