The OECD lifted its 2026 global growth forecast to 2.9%, crediting resilient markets and strategic oil reserves for absorbing the energy shock triggered by the Iran conflict better than feared. But the Paris-based organisation warned that rising bond yields and persistent inflation are straining Europe's already stretched public finances.
The organisation trimmed its 2027 forecast to 3%. It now expects the US to grow 2.2% this year and the eurozone 1%, both up 0.2 percentage points from previous projections. Japan's forecast rose by the same margin to 0.8%. China's projection was left unchanged at 4.5%, and the G20 together is expected to expand 3.1%.
Spain Outperforms the Eurozone
Within the eurozone, the OECD expects Spain to grow 2.6% in 2026 and 1.8% in 2027. That puts Madrid well ahead of the eurozone average and underscores the competitive advantage of structural reforms implemented over the past decade. Spain's performance stands in contrast to the sluggish growth elsewhere in the single currency bloc.
The OECD said the world economy has weathered the energy supply shock triggered by the conflict in the Middle East better than expected. Energy prices have soared since the US and Israel launched strikes on Iran in February, but sizeable oil inventories, extra supply from producers outside the Gulf and discretionary government support measures softened the blow. Broader financial conditions, including rising stock markets and continued access to credit, have remained supportive.
The AI Investment Wildcard
Heavy investment in AI has bolstered production and trade, and the organisation said it could yet deliver stronger growth than projected. That's the upside scenario. The downside: AI investment returns could disappoint, dragging down productivity gains that markets have already priced in.
Inflation and Borrowing Costs Climb
Central banks have begun raising interest rates to contain inflation driven by high oil and gas prices, which have pushed diesel and other fuel costs to multi-year highs. Headline inflation in G20 countries is projected at 4.1% this year, while the OECD expects it to reach 3% in the eurozone.
Government bond yields in EU countries including Germany and France have climbed to multi-year highs, raising borrowing costs for countries already carrying heavy debts and deficits. In Europe, those higher borrowing costs, along with targeted, temporary energy support, are putting further strain on public finances.
The OECD warned that rising bond yields underline the need for enhanced efforts to contain and reallocate government spending, improve public-sector efficiency and strengthen revenues to ensure longer-term debt sustainability and maintain the ability of governments to react to significant shocks.
Risks Remain
The organisation flagged a prolonged war, weather-related supply shocks from a very strong El Niño hitting harvests and food prices, and AI investment returns that could disappoint as key risks that could weaken growth.
Why This Matters:
The OECD's upgraded forecast is welcome news, but it comes with a warning label for Europe. Rising bond yields are a market signal that investors are losing patience with high-debt governments that haven't reformed their spending. The energy shock has been absorbed this time — through inventories, alternative supply, and temporary subsidies — but those are short-term fixes. Europe's fiscal position remains fragile. Countries with heavy debts face higher borrowing costs precisely when they need fiscal space to respond to shocks. The OECD's call for spending discipline, public-sector efficiency, and revenue reform isn't ideological — it's arithmetic. Without credible fiscal consolidation, Europe risks a sovereign debt crisis the next time markets turn. Spain's outperformance shows what structural reform can deliver. The rest of the eurozone should take note.