The Organisation for Economic Co-operation and Development raised its inflation forecast for G20 economies to 3.6% in 2027, from 3.1% in its June estimates, and lifted its forecast for 2026 to 4.1% from 4%, warning that persistent inflationary pressures could require further monetary tightening.
Inflation and interest-rate outlook
The increase in its consumer-price growth forecasts, compared with last June’s estimates, covered all G20 economies except China and Saudi Arabia. The OECD said central banks needed to ensure that underlying inflationary pressures were sustainably contained, as inflation remained above target in several economies and new energy-price shocks emerged alongside stronger-than-expected demand.
OECD chief economist Stefano Scarpetta said the key message was that central banks needed to remain highly vigilant, adding that they might need to intervene more forcefully than they had during the inflation wave that followed 2022.
The forecasts come after a round of monetary tightening in September, during which the Federal Reserve, the European Central Bank and the Bank of Japan raised interest rates within a little more than a week.
The OECD expects the Federal Reserve to raise interest rates again before the end of the year, along with limited additional increases in the eurozone, Australia and South Korea, and further hikes in Japan. By contrast, it expects the Bank of England and the Bank of Canada to leave interest rates unchanged for now.
Money-market bets are almost evenly split on whether the Federal Reserve, the European Central Bank and the Bank of England will implement one or two additional rate increases before the end of the year, while expectations lean toward one more hike in Japan and a 25-basis-point increase in Canadian interest rates. The OECD does not necessarily expect a repeat of the sharp pace of increases that followed the Russia-Ukraine war in 2022.
Growth outlook for major economies
The OECD left the broad trajectory of global economic growth largely unchanged from its forecasts in June, but lowered its estimates for Canada, which is facing a trade war with the United States, and France amid a period of political instability.
In the United States, the OECD expects growth of 2.2% this year and 2.1% in 2027, both above its June estimates, supported by artificial-intelligence-related investment that offsets weaker consumer spending.
The OECD expects China’s growth to slow to 4.5% this year and 4.2% in 2027, unchanged from its June estimates. Eurozone growth is also expected to remain at 1% in both 2026 and 2027, as energy prices and high interest rates continue to weigh on economic activity.
Japan’s economy is expected to grow 0.8% in 2026 and 0.7% in 2027. The OECD cut its forecast for Canada’s growth in 2026 to 0.9% from 1.2% in June, and reduced its 2027 estimate to 1.3% from 1.7%, because of new US tariffs on Canadian exports.
Trade and artificial-intelligence risks
The OECD said the global economic outlook still depended heavily on the possibility of reaching a lasting resolution to the conflict in the Middle East, warning that ongoing changes in trade policies, including tariffs and export restrictions, were increasing uncertainty and exacerbating supply disruptions.
The OECD reiterated the need for public-finance reform, saying recent increases in bond yields heightened the need to rein in spending and bring budget positions under control.
The report highlighted artificial intelligence’s potential to boost productivity and growth, but warned that the expected returns from massive investment in the sector could be delayed or fall short of expectations. Security concerns could also slow the development or adoption of the technology, while leverage levels and complex financing structures posed additional risks.
The OECD warned that weak earnings growth among companies in the sector could lead to a significant slowdown in artificial-intelligence investment, affecting related industries such as engineering and construction, as well as putting pressure on asset valuations in financial markets.
