The global economy is showing more resilience than expected in 2026, helped by a surge in investment linked to artificial intelligence, but the impact of the Middle East conflict on energy markets is becoming a growing threat to global growth.
The Organisation for Economic Co operation and Development expects the global economy to grow 2.9% this year, slightly above its previous forecast of 2.8%. But the outlook for 2027 has been weakened by higher commodity prices and persistent energy market pressures.
Global growth is projected to reach 3.0% in 2027, below the OECD’s earlier forecast of 3.1%. The downgrade reflects expectations that higher energy and commodity prices will increasingly weigh on households, businesses and investment.
AI investment has emerged as one of the main sources of economic resilience. Heavy spending on data centres, semiconductors and other AI infrastructure is supporting activity in the United States while also increasing technology exports from economies such as Japan and South Korea.
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That support, however, may not be enough to offset broader economic pressures if the energy shock becomes more severe.
The OECD warned that the global economy faces several significant risks heading into 2027. Further instability in energy markets, extreme weather associated with a strong El Niño, rising government bond yields and weaker than expected returns from AI investment could all undermine growth.
Taken together, the OECD estimates that these risks could reduce global growth by 0.7 percentage points next year while increasing global inflation by 1.1 percentage points.
Energy Shock Raises Inflation Risks
The energy shock is already changing the inflation outlook.
Inflation across the G20 economies is expected to average 4.1% in 2026, slightly above the OECD’s previous forecast of 4.0%. The organisation also raised its 2027 inflation forecast to 3.6% from 3.1%.
A prolonged increase in energy prices could complicate decisions for central banks. Higher inflation could limit their ability to reduce interest rates, while weaker economic activity could increase pressure for monetary easing.
The challenge is particularly visible in Europe, where higher natural gas prices are expected to keep inflation elevated. Euro zone inflation is projected at 3.0% in 2026 and 2.9% in 2027, while gas storage levels are at their lowest point in 15 years heading into the winter heating season.
Higher energy costs can also affect economies indirectly by increasing transportation, manufacturing and household expenses. This creates a difficult environment for policymakers because attempts to contain inflation through tighter monetary policy can further weaken economic activity.
Major Economies Face Different Pressures
The United States remains one of the main beneficiaries of the AI investment cycle. The OECD expects the US economy to grow 2.2% in 2026 and 2.1% in 2027, both higher than its previous projections.
Strong corporate spending on AI infrastructure is helping offset weaker consumer demand. At the same time, tariffs and higher energy prices are expected to put pressure on household purchasing power and business costs.
US inflation is projected at 3.6% in 2026 before easing to 2.6% in 2027.
China faces a different set of pressures. Its economy is expected to expand 4.5% this year and 4.2% next year, unchanged from the OECD’s June projections.
Beijing’s efforts to address excess industrial capacity are expected to weigh on investment, while consumption is gradually strengthening as inflation picks up.
Europe is more directly exposed to the energy shock. Euro zone growth is projected at only 1.0% in both 2026 and 2027 as higher energy prices and interest rates constrain economic activity.
New defence spending initiatives are expected to provide some support, but they will operate against a broader environment of elevated energy costs and inflation.
Japan is also facing higher costs for imported energy. Its economy is projected to grow 0.8% in 2026 and 0.7% in 2027, with stronger business investment partly offsetting the effects of higher interest rates and energy prices.
Unlike many other major economies, Japan is expected to see inflation accelerate, reaching 2.6% in 2027 compared with 1.8% this year. A tight labour market and stronger wage growth are contributing to the pressure.
Canada’s outlook has weakened as well. The OECD cut its 2026 growth forecast to 0.9% from 1.2% and reduced its 2027 projection to 1.3% from 1.7%, citing the impact of new US tariffs on Canadian exports.
AI Resilience Meets Energy Vulnerability
The contrasting forces shaping the outlook point to a broader transformation in the global economy.
AI investment is generating demand across several parts of the technology supply chain, from advanced semiconductors to electricity intensive data centres. That investment is supporting economic activity even as traditional sources of growth face pressure.
But the expansion of AI infrastructure also creates a growing connection between technology and energy markets. Data centres require large amounts of electricity, while semiconductor production and other parts of the technology supply chain depend on stable energy and commodity supplies.
This means that a prolonged energy shock could affect the very investment cycle that has helped support global growth.
The OECD’s outlook therefore highlights a fragile balance heading into 2027. The global economy is benefiting from a powerful new investment cycle, but that resilience is being tested by higher energy costs, inflationary pressure and geopolitical instability.
Whether AI investment can continue to offset these pressures will depend not only on technology spending, but also on the stability of global energy markets and the ability of governments and central banks to manage the inflation and growth trade offs created by the Middle East conflict.
With information from Reuters.
