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US-Iran war knocks global economy of stronger growth path, fuels higher inflation – OECD

Global growth forecast seen at 2.9% in 2026 (unchanged), 3.0% in 2027 (previously 3.1%)US growth forecast seen at 2.0% in 2026 (previously 1.7%), 1.7% in 2027 (previously 1.9%)Eurozone growth forecast seen at 0.8% in 2026 (previously 1.2%), 1.2% in 2027 (previously 1.4%)China growth forecast seen at 4.4% in 2026 (unchanged), 4.3% in 2027 (unchanged)UK growth forecast seen at 0.7% in 2026 (previously 1.2%), 1.3% in 2027 (unchanged)Japan growth forecast seen at 0.9% in 2026 (unchanged), 0.9% in 2027 (unchanged)For some context, the latest forecast shows that global growth is expected to ease from the 3.3% estimate last year as the US-Iran conflict is set to see energy prices surge for an extended period of time. The OECD noted that the world economy had been on course for stronger-than-expected growth in the early months this year but that is now all out the window after the Middle East developments.Had it not been for the war, the OECD could have revised higher the global growth estimate by 0.3% in 2026.Do keep in mind that the main caveat to the forecasts above is conditional on the technical assumption that the energy market disruption will moderate over time. That as the OECD anticipates oil and gas prices to decline gradually from the middle of this year onwards.Amid the latest surge in energy prices, the OECD also projects G20 inflation to surge to 4.0% in 2026. That is some 1.2% higher than their previous projection. After which, inflation is expected to ease back to 2.7% in 2027.
This article was written by Justin Low at investinglive.com.

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💡 DMK Insight

The unchanged global growth forecast signals stability, but the downward revisions for the US and Eurozone could impact market sentiment. With the US growth forecast slightly up to 2.0% for 2026, traders might see this as a positive sign for the dollar, especially against weaker currencies. However, the Eurozone’s downgrade to 0.8% raises concerns about potential economic stagnation, which could lead to further ECB easing measures. This divergence could create volatility in forex pairs like EUR/USD, where traders should watch for a break below key support levels around 1.0500. Additionally, if China maintains its 4.4% growth, it could bolster commodity prices, impacting related markets. Keep an eye on how these forecasts influence risk sentiment, particularly in equity markets, as traders reassess their positions based on economic health indicators. The real story here is the potential for a stronger dollar amidst a weakening Eurozone, which could shift capital flows significantly. Watch for any updates from central banks that might react to these forecasts, especially in the upcoming months as we approach key economic data releases.

📮 Takeaway

Monitor EUR/USD closely for a potential break below 1.0500, as Eurozone growth concerns could drive further dollar strength.

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