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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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Caution is warranted despite the initial resilience to higher energy prices

• We’ve reduced our world GDP growth forecast for 2027 by 0.2ppts to 2.9% as the global economy continues to weather the energy price shock. While this leaves growth in the middle of the 2.8%-3% range seen in recent years, our forecast remains below our baseline prior to the outbreak of the Iran conflict.
• GDP data for Q2 has shown that the initial hit to world activity from the consequences of the Iran conflict was less severe than we had previously assumed. That said, world GDP growth is estimated to have slowed from 2.5% annualised in Q1 to just 1.7% in Q2 – a significant but not disastrous slowdown. While we do not put a lot of weight on the business surveys, it should be noted that, in August, the JP Morgan global composite PMI increased to its highest level in more than two years, suggesting that this resilience continued into Q3.
• We’ve become a bit more cautious about the growth outlook in 2027 and expect the recovery to build up steam only slowly. Although we’ve not made any notable changes to our oil price forecast, we’ve pushed up inflation forecasts slightly, in part reflecting the slower fall in the price of refined oil products and higher natural gas prices. This, coupled with weaker wealth effects in the US, points to slightly softer consumer spending.
• In our view, the Federal Reserve and other central banks won’t need to tighten monetary policy to contain inflationary pressure. One exception is the European Central Bank and we expect a hike in September but not to raise rates subsequently. We expect the Bank of Japan to hike rates twice this year and once in 2027, one additional hike compared to a month ago. While our central bank forecasts are more dovish view than markets, we believe that near-term hikes haven’t been the sole driver of the rise in long-term yields over the summer and that any fall back in long-term yields will be gradual.

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