OECD expects AI boom to help offset Middle East energy shock for now

The Organisation for Economic Co-operation and Development (OECD) projects that the global economy will experience a slowdown in growth, but the surge in artificial intelligence (AI) investment is providing a temporary cushion. After a 3.4% growth rate in 2025, the global economy is expected to decelerate to 2.9% growth in 2026, marginally better than the 2.8% forecast in June.

Heading into 2027, the energy shock from the Middle East conflict is anticipated to weigh on momentum, and the OECD projects global growth to only 3.0% in 2027, down from 3.1% in June. The OECD attributes strong spending on AI infrastructure, such as data centers and semiconductors, as a key driver of resilience this year, boosting growth in the United States and enhancing technology exports from Japan and South Korea.

However, the global outlook is clouded by potential risks like energy market uncertainty, extreme weather due to a strong El Niño, soaring government bond yields, and underwhelming AI investment returns. If these risks materialize, the OECD estimates they could collectively reduce global growth by 0.7 percentage points in 2026 and increase global inflation by 1.1 percentage points.

The OECD's baseline outlook forecasts inflation to reach 4.1% in G20 economies in 2026, up from 4.0% in June. The 2027 forecast for inflation is set at 3.6%, an upgrade from the 3.1% estimate in June. In the United States, the world's largest economy, growth is expected to be 2.2% in 2026 and 2.1% in 2027, both upgrades from June, as substantial AI-related investment compensates for weaker consumer spending.

US inflation is projected to climb to 3.6% in 2026 and ease to 2.6% in 2027, as tariffs and higher energy prices impact household purchasing power and business costs. China's growth is projected to slow to 4.5% in 2026 and 4.2% in 2027, unchanged from June, as Beijing's restrictions on excess industrial capacity hinder investment, even as consumption gradually rebounds with rising inflation.

The Eurozone's growth is forecast to remain at 1.0% in both 2026 and 2027, with higher energy prices and interest rates dampening activity before new defense spending initiatives offer support. Eurozone inflation is expected to be 3.0% in 2026 and 2.9% in 2027, driven partially by a surge in natural gas prices as European storage levels hit 15-year lows ahead of the winter heating season.

Japan's economy is anticipated to grow by 0.8% in 2026 and 0.7% in 2027, as rising policy rates and pricier energy imports counterbalance robust business investment. Unlike other major economies, Japan's inflation is projected to accelerate to 2.6% in 2027 from 1.8% this year, reflecting a tight labor market and strong wage growth.

Canada's 2026 growth forecast was downgraded to 0.9% from 1.2% in June, and its 2027 outlook was lowered to 1.3% from 1.7% due to new US tariffs on Canadian exports.