The Organisation for Economic Co-operation and Development (OECD) has outlined two potential economic trajectories influenced by the ongoing conflict in Iran. The first scenario, assuming a swift resolution, predicts a modest slowdown in global growth from 2.9% to 2.8% this year. However, the second, more severe scenario forecasts a prolonged conflict significantly hindering growth, potentially dropping to 1.8% by 2027, especially impacting economies reliant on Middle Eastern energy.
Economic Impact Across Scenarios
In the base case scenario, the OECD expects inflation to moderate to 3.1% by 2027. Contrarily, a protracted conflict could exacerbate inflationary pressures, pushing rates higher by an additional 1.3 percentage points in the same timeframe. This scenario also anticipates a downturn in Persian Gulf energy output, disproportionately affecting Asian economies outside of China.
'The vulnerability of our economies to one single chokepoint demonstrates the need for intensifying efforts to strengthen the resilience of supply chains,' stated Stefano Scarpetta, OECD chief economist.
AI Investment and Economic Fragility
The report also highlights the dual-edged sword of AI investments. While the U.S. reaps benefits from its insularity against energy shocks and robust AI-related investments, the global reliance on semiconductor supply chains and energy markets introduces vulnerabilities. Prolonged disruptions could significantly weaken investment incentives in energy-intensive AI technologies, further dampening economic prospects.
As central banks remain cautious, the OECD suggests that fiscal policy may bear the brunt of economic stabilization efforts, albeit constrained by existing financial pressures from rising debt and defense expenditures. The global economy faces a precarious balance between leveraging technological advancements and mitigating geopolitical risks.