Growth holds up, but the cushions are thin
The OECD expects the global economy to grow 2.9% in 2026 and 3% in 2027. Annualised growth slowed from 3.6% in the second half of last year to 2.6% in the first half of 2026. The group said the world has absorbed the energy shock caused by conflict in the Middle East better than first feared, helped by alternative supply routes, releases from strategic oil reserves, higher production outside the Gulf and weaker Chinese oil demand.
Secretary-General Mathias Cormann said those cushions are now being used up. "Global growth has held up better than expected, but the buffers that absorbed the energy shock are being depleted," he said. "Growth is weaker than last year and inflation is rising again."
Inflation and the cost of borrowing
The OECD expects inflation across the G20 to average 4.1% in 2026 before easing to 3.6% in 2027. Core inflation in advanced economies is forecast to fall from 2.7% this year to 2.5% in 2027. At the same time the group has raised its inflation forecasts and warned about interest rate pressure, saying central banks in the United States and Europe may need to raise rates again.
The bigger worry is government debt. Bond yields have risen well above levels justified by interest rate expectations alone, pushed higher by heavier issuance, weaker structural demand for long-dated bonds and greater investor concern about risk. The aggregate OECD issuance yield on fixed rate bonds and Treasury bills sat around 4% in 2025, a level last seen in 2007. For finance ministries, that means refinancing old debt costs more, leaving less room for spending on infrastructure, defence or tax cuts.
Regional outlook
The OECD forecasts US growth of 2.2% in 2026 and 2.1% in 2027. China is expected to grow 4.5% this year and 4.2% next year, while the euro area is projected to expand 1% in both years. Markets reflected part of the story this week: the dollar rose to its strongest level in two months on expectations of higher US rates, while oil slipped as Saudi Arabia restarted its East-West pipeline. Brent crude traded near $98 a barrel after peaking around $109 earlier this month, and West Texas Intermediate hovered near $90.