Global growth forecast lifted to 2.9% despite Mideast war, OECD says

The Organization for Economic Co-operation and Development (OECD) has increased its global economic growth forecast to 2.9 percent for the year, despite the ongoing war in the Middle East, according to a report released on Wednesday. This represents a slight 0.1-point increase from its June estimates.

The OECD attributed the upward revision to the resilience of growth in many countries, despite surging energy prices since the United States and Israel launched strikes against Iran in February 2020. They noted that supportive financial conditions, such as rising equity markets and continued access to credit, have helped cushion the impact on the global economy.

The group also highlighted the cushioning effects of large oil inventories, additional supply from outside the Gulf economies, and government support measures. Additionally, massive investments in artificial intelligence and the resulting increase in production and trade have contributed to stronger growth than initially projected.

However, global growth has slowed significantly from the 3.4 percent increase observed in 2022. The OECD has reduced its 2027 growth forecast by 0.1 percentage point to 3 percent.

In response to high oil and gas prices, governments have begun raising interest rates to control inflation, which has led to elevated borrowing costs. The OECD emphasized the need for governments to enhance efforts in containing and reallocating spending, improving public-sector efficiency, and strengthening revenues to ensure longer-term debt sustainability and maintain the capacity to respond to significant shocks.

The OECD also warned of prolonged inflation if the Middle East conflict persists, projecting an overall inflation rate of 4.1 percent in the G20 group of developing and emerging economies this year. Other downside risks include potential weather-related supply shocks, such as a strong El Nino, which could adversely affect agricultural production and exacerbate rising food prices.

For South Africa, the OECD forecasts growth of 1.2 percent in 2026 and 1.6 percent in 2027, slightly lower than the global projection. For the United States, the forecast is an expansion of 2.2 percent in 2024, up 0.2 points from the June forecast. The eurozone is expected to see growth of 1 percent, also up 0.2 points. Japan's growth is now projected at 0.8 percent, up 0.2 points, while China's economy remains steady at 4.5 percent.

The OECD sees global growth for the G20 at 3.1 percent.