Global economic growth will slow to 2.8 percent this year from 3.4 percent last year, the Organisation for Economic Co-operation and Development (OECD) forecast on Wednesday in its outlook. The growth estimate was cut from 2.9 percent in its March forecast. According to the OECD, the conflict in the Middle East is having a negative impact on the global economy.
"The evolution of the Middle East conflict remains uncertain, but its economic consequences are likely to persist for some time even after its resolution," the OECD said.
Middle East conflict hampers global economy
The conflict in the Middle East was sparked by US-Israeli attacks on Iran at the end of February. The conflict disrupted shipping in the Strait of Hormuz, through which about a fifth of the world's oil supplies passed. This led to a rise in fuel prices worldwide, raising fears of a slowdown in economic growth and a rise in inflation.
In its baseline scenario, the OECD assumes that energy prices will begin to gradually decline from mid-year. Next year, global economic growth should accelerate to 3.1 percent, according to the OECD forecast.
However, the organization warned that if supply disruptions through the Strait of Hormuz continue into next year, global economic growth could be only 2.1 percent this year and 1.8 percent next year. Some countries could thus fall into or approach recession.
AI investments help the United States, China slows down
Economic growth in the eurozone should slow to 0.8 percent this year from 1.4 percent last year, according to the OECD baseline scenario. The slowdown in economic expansion should be significantly milder in the United States, where gross domestic product (GDP) should increase by 2.0 percent this year after 2.1 percent growth last year. The United States is the world's largest economy.
"Although the energy market shock and increased uncertainty stemming from the Middle East conflict are expected to undermine household consumption growth, underlying economic growth continues to be supported by high investment related to artificial intelligence," the OECD said of the US economic outlook.
Growth in the Chinese economy, the world's second-largest, will slow to 4.5 percent this year from 5.0 percent last year, according to the OECD.
