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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The economic slowdown driven by the Middle East conflict looks manageable
- The duration of disruption to shipping traffic in the Strait of Hormuz is the critical known unknown for the global economic outlook, along with how quickly energy production can recover. If traffic picks up gradually, in line with our baseline assumption, then recessions around the globe would be unlikely. However, the Middle East conflict is expected to push world GDP growth down to 2.4% this year, below the tight 2.8%-3% range of the past few years.
- Recent data suggest that the world economy grew at a solid pace in Q1. Since then, survey data provide some evidence that the negative impact of the US/Israel war with Iran has been manageable. The JP Morgan global composite PMI remained below the pre-conflict level in April, but it rose on the month and lies only a touch below the 2025 average.
- We assume that Q2 will mark the low point for global growth and that a decline in oil prices will trigger an H2 rebound. The lack of a marked tightening in financial conditions to date supports our view that a major and more sustained downturn will be avoided. Meanwhile, factors such as the AI investment boom act as a counterweight to the oil price shock.
- We’ve raised our oil price forecasts for Q2 by US$5 to $117pb and by even less for Q3, reflecting more conservative assumptions about the volume of shipping traffic passing through the Strait of Hormuz in the near term. This should have only a minor impact on GDP growth and inflation.
- Due to upward revisions to both US GDP growth and inflation, along with a stable labour market, we’ve pushed back the timing of the next cut by the Federal Reserve from June to December. Nonetheless, we still think that the Fed and other major central banks will be less hawkish than markets expect.
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