OECD downgrades global economic outlook due to Middle East conflict
The Iran war is reshaping the global economic landscape, just as many organizations were beginning to believe the worst of inflation shock was behind them.
In its March 2026 Interim Economic Outlook, the Organisation for Economic Co-operation and Development (OECD) warns that the conflict, centred on Iran and the Strait of Hormuz, is darkening the growth outlook and reigniting inflation pressures through higher energy and shipping costs.
The OECD had been preparing to slightly upgrade its global GDP growth forecast to 3.3 per cent before the Iran conflict escalated, but the new shock has effectively wiped out those gains to the December 2025 projection of 2.9 per cent, reported Reuters. For Canada — whose real GDP growth is projected to increase by 1.2 per cent in 2026, a slight downgrade from 1.3 per cent in the OECD’s December 2025 forecast — a world of weaker growth and stickier inflation could mean more volatility in commodity prices, a softer currency, and greater divergence between sectors that benefit from higher energy prices and those that suffer from them.
The report also revised the projection for global GDP growth in 2027 from 3.1 per cent to three per cent, with Canada at 1.7 per cent.
Source: OECD
Slowing global growth, higher inflation create uncertainty
The OECD’s message is that global growth that had been holding up better than expected is now at risk of slowing, and the path back to inflation targets will be more complicated. For Canadian HR leaders, that means renewed uncertainty around wage projections, talent planning, and cost management at a time when many organizations are already fatigued by years of disruption.
The war’s economic impact is flowing mainly through energy markets. The Strait of Hormuz remains a critical chokepoint for global oil and liquefied natural gas shipments, and repeated attacks in and around the waterway have pushed benchmark crude prices sharply higher in recent weeks. Higher fuel costs feed quickly into transportation, manufacturing, and food, and then into headline inflation in most advanced economies.
The OECD report cautions that this new energy shock risks undoing part of the disinflation progress achieved since late 2023, particularly in economies that rely heavily on imported oil and gas. Inflation in G20 countries is expected to be at four per cent in 2026 instead of the 2.8 per cent previously projected, with Canada’s rate at 2.4 per cent — up from 2.1 per cent in the December economic outlook.
Source: OECD
More pressures for businesses
For Canadian organizations, that scenario matters in several ways. First, a slower global economy and higher borrowing costs could weigh on export demand, business investment, and hiring plans. Sectors tied to global trade, manufacturing, transportation, tourism, and energy-intensive production may see budgets pulled back or hiring freezes reinstated as leadership teams reassess revenue forecasts.
Second, renewed inflation pressure will likely revive difficult conversations at the bargaining table. Workers who accepted more moderate increases as inflation came down may now look for additional cost-of-living protection if prices at the pump and in grocery aisles move higher again. The head of the European Central bank warned that firms and workers could react more quickly to this shock than they did after Russia’s invasion of Ukraine, precisely because memories of high inflation are still fresh, reported the Associated Press.
Third, the war is adding a new layer of geopolitical risk to already stressed supply chains. Even companies with limited direct exposure to the Middle East can be affected through higher shipping insurance costs, rerouting of cargo, and delays in key inputs such as petrochemicals, fertilizers and metals.
Prolonged conflict would cause bigger hit
The OECD also warns that its global GDP growth projections assumed that the disruption in the energy market from the Middle East conflict is temporary and energy prices would ease later in 2026. If the disruption is prolonged, global GDP could be 0.5 per cent lower and inflation about 0.7 per centage points higher by 2027, it says.
