## INTERNATIONAL MONETARY AND FINANCIAL COMMITTEE Fifty-Fourth Meeting — Statement No. 54-3 (Statement by Mr. Cormann, OECD)

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### The global economic outlook
- The energy shock from the ongoing conflicts in the Middle East has slowed global growth and increased inflationary pressures.
- Global growth declined from an annualised rate of 3.5% in the second half of last year to 2.7% in the first half of this year.
- High energy prices have pushed inflation above central bank targets in more than half of G20 countries.
- Growth in the first half of this year exceeded the projection of 2.4% in the June OECD Economic Outlook.
- Oil markets adjusted quickly on both the supply and demand sides:
  - Supply-side adjustments: extra production outside the Gulf, alternative export routes and large drawdowns of inventories.
  - Demand-side adjustments: consumers and businesses cut back energy consumption and, in some cases, switched to energy inputs such as coal.
  - In China, energy imports and oil consumption fell sharply.
- AI investment effects:
  - In the 12 months to July 2026, production of computers and electronics grew by 18% in the European Union, 11% in the United States, 19% in China and 12% in other major Asian economies.
  - Total industrial production in the European Union stagnated over the same period, and in the United States it grew by only 1%.
  - Seventy per cent of the annual growth in global goods trade value came from AI-enabling products between January and May 2026.
- Buffer erosion and inventories:
  - Observed global oil inventories were 507 million barrels lower in August than in February 2026, a fall of around 6%.
  - The Strategic Petroleum Reserve in the United States is at its lowest level since 1982.
  - In Europe, natural gas reserves as a share of total capacity are at the lowest level for this time of year in more than 15 years.
- Energy and refining:
  - In September 2026, oil prices returned to more than USD 100 per barrel, after falling to around USD 70 in early July.
  - Gas prices rose to their highest level since 2022 in Europe.
  - Refinery margins in Asia, Europe and the United States increased several-fold between February and August 2026, raising upward pressure on gasoline and diesel prices.
- Inflation dynamics:
  - Global headline inflation rose in August, and daily data for September show that prices were increasing faster than the historical average for the time of year.
  - Inflation expectations generally appear anchored but, after peaking in April and May 2026, have recently risen again in several major economies, including the euro area, the United Kingdom and the United States.
- OECD Interim Economic Outlook (released on 23 September 2026) projections and assumptions:
  - Projects global GDP growth of 2.9% in 2026 and 3.0% in 2027, down from 3.4% in 2025.
  - Projection is conditional on the technical assumption that energy prices evolve in line with futures markets as of 14 September 2026.
  - On this basis, energy prices peak at the end of 2026 and decline from early 2027, with oil averaging USD 105 per barrel in the last quarter of this year and USD 85 next year.
  - Global growth is expected to be held back through the end of 2026, with a gradual recovery through 2027 as energy prices ease and AI-related investment and production continue to support growth.

### Regional and country projections
- G20 advanced economies:
  - United States: GDP growth is projected to be 2.2% in 2026 and 2.1% in 2027.
    - Upward revisions to GDP growth and downward revisions to consumer price inflation for the first half of this year, released at the end of September, suggest that US growth could be even stronger in 2026 than projected in the OECD Interim Economic Outlook.
  - Euro area: growth is expected to remain moderate at 1.0% in both 2026 and 2027.
  - United Kingdom: projected to grow by 1.1% in 2026 and 1.0% in 2027.
  - Japan: growth projected to ease slightly from 0.8% in 2026 to 0.7% in 2027.
- G20 emerging market economies:
  - China: growth is projected to ease from 5.0% in 2025 to 4.5% in 2026 and 4.2% in 2027.
  - India: growth is projected to decline from 7.8% in the fiscal year 2025-2026 to 7.1% in the fiscal year 2026-2027 and 6.5% in the fiscal year 2027-2028.
  - Indonesia: growth is projected to remain broadly stable at 5.2% in 2026 and 5.1% in 2027.

### Inflation outlook and risks
- Aggregate projections:
  - Headline inflation in the G20 is expected to rise from 3.4% in 2025 to 4.1% in 2026, before declining to 3.6% in 2027.
  - In G20 advanced economies, headline inflation is projected at 2.5% in 2025, 3.2% in 2026 and 2.6% in 2027.
  - Core inflation in G20 advanced economies is projected to ease slightly from 2.7% in 2026 to 2.5% in 2027.
  - Headline inflation in Japan is projected to strengthen in 2027 amid a tight labour market.
- Key risks highlighted:
  - Further cuts to energy supplies from the Middle East, including damage to production facilities, continued restrictions in the Strait of Hormuz or disruptions to alternative routes such as the Bab al-Mandeb Strait.
  - Food-price pressures:
    - Between late May and mid-September, food-price futures for the first two quarters of 2027 rose by an average of 8%.
    - There is a 98% chance of a very strong El Niño before the end of this year.
  - Fiscal and financial risks:
    - In September 2026, 30-year government bond yields were at their highest levels in 15 years or more in all G7 economies other than Italy.
  - AI-related risks:
    - Faster adoption of AI could lift productivity and growth, but AI infrastructure requires enormous capital and analyst earnings forecasts imply earnings growth must rise rapidly; if earnings disappoint, investment could slow sharply and asset prices could fall.
- Illustrative adverse and upside scenarios:
  - Adverse scenario: Persistently higher energy and food prices and tighter financial conditions could cut 0.7 percentage points from global growth in 2027 and add 1.1 percentage points to inflation.
  - Upside scenario: A 10% fall in energy prices from the fourth quarter of 2026 onwards is estimated to raise global growth by 0.1 percentage points in 2027 and reduce global inflation by 0.3 percentage points.

### Policy requirements and recommendations
- Fiscal policy:
  - Strong fiscal discipline is needed to avoid a short-term rise in budget deficits and ensure the long-term sustainability of public finances.
  - Higher energy prices are putting pressure on governments to extend or reintroduce support for households and firms; where support is needed, it must be targeted and temporary and should preserve incentives to save energy and diversify supply.
  - As of September 2026, only about half of active fiscal energy-support measures across 50 OECD and non-OECD countries were targeted.
  - In every G20 country except Germany and Türkiye, public debt as a share of GDP was higher in the first quarter of 2026 than at the end of 2007.
  - Countries need to contain and reallocate spending, improve public-sector efficiency and make tax systems more effective, while protecting investment in education, skills and digital infrastructure.
- Monetary policy:
  - Central banks need to ensure that inflation expectations remain well anchored.
  - Around two-fifths of central banks across OECD and other economies have increased policy rates since March.
  - Central banks may not need to respond to temporary, energy-driven rises in inflation, but they must act if price pressures broaden or growth and labour market conditions weaken sharply.
- Structural and medium-term policies:
  - Diversifying energy supply and improving energy efficiency to reduce exposure to disruptions.
  - Reforms to strengthen competition, remove barriers to business investment and facilitate reallocation of workers and capital to more productive activities to adapt to technological change and lift potential growth.
  - Strengthening the skills base and digital and AI literacy is essential:
    - The latest results of the OECD’s Programme for International Student Assessment (PISA), published on 8 September 2026, show that reading and mathematics performance across OECD countries is at its lowest level on record.
    - OECD evidence also points to declining adult skills.

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_Source: https://www.imf.org/-/media/files/meetings/2026/annual/imfc/oecd.pdf_