World Economic Prospects
Each month Oxford Economics’ team of 450 economists updates our baseline forecast for 200 countries using our Global Economic Model, the only fully integrated economic forecasting framework of its kind. Below is a summary of our analysis on the latest economic developments, and headline forecasts. To access the full report (and much more), request a free trial today.
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Oil inventories limit the pain of the Strait of Hormuz closure
- Our forecasts for world GDP growth of 2.4% in 2026 and 3.1% in 2027 are little changed from a month ago. We’ve cut our world growth forecasts significantly since the onset of the US/Israel war with Iran, but we still think the global economy will avoid a recession.
- The economic spillovers to the global economy from the closure of the Strait of Hormuz have been moderate to date because other regions have increased their oil output and run down their inventories, thereby curbing the scale of the oil supply shock. Our latest estimate of quarter-on-quarter world GDP growth for Q2 is lower than the narrow range of the past four years, but not alarmingly so.
- It’s uncertain how much longer oil inventories can act as a buffer. We suspect inventories could reach critical levels by late September if the Strait of Hormuz remains closed. We assume the Strait will reopen around the end of July, later than previously assumed but before this stress point is reached.
- This would keep the oil price elevated in the near term – we’ve pushed up our forecast for the average Brent oil price in Q3 to over US$100 per barrel, almost US$20 higher than a month ago. However, we assume inventories will continue to act as a shock absorber, preventing a sustained upward push in the oil price to new record highs.
- Risks remained weighted to the downside. A more prolonged closure could result in oil prices rising further and then surging once inventories reach their absolute lows. The resulting economic pain could be the catalyst for some kind of deal to get traffic flowing through the Strait of Hormuz again. However, at such a point intransigence by one or the other party can’t be ruled out, and in such a scenario rocketing oil prices and shortages could tip economies into recession.
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