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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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US/Israel-Iran conflict weakens the growth outlook

• The US/Israel-Iran conflict and the associated surge in energy prices have prompted us to revise our world GDP growth forecast down by less than 0.1ppt from a month ago. At 3.0%, our 2026 GDP growth forecast assumes that further sharp and sustained rises in the oil price are avoided. The risk of more prolonged energy market disruption and greater adverse spillovers add downside risk to our global outlook.
• US President Donald Trump’s declaration that the war will end soon helped to reverse the sharp rise in the oil price following the election of hardline Motjaba Khamenei as Iran’s Supreme Leader. We expect the oil price will average almost US$80 per barrel in Q2, approximately US$15 higher than our February forecast. We’ve raised our projections for European and Asian gas prices by even more.
• We assume the conflict will predominantly dampen economic activity via a spending squeeze from higher inflation. But a more lasting energy supply disruption could generate higher oil and gas prices. These impacts could be amplified by a financial market sell off, supply chain disruption beyond energy markets, and broader effects of lower confidence.
• Spikes in the geopolitical risk (GPR) index over recent years haven’t been associated with sharp economic slowdowns at a global level. However, the GPR index spiked to its highest level since the September 11 attacks in 2001 (Chart 1), raising the possibility that this time it triggers a more notable reaction to broader measures of economic uncertainty.
• We adjusted our economic forecasts to reflect the US replacing IEEPA tariffs with a new global tariff. We assume President Trump will raise the tariff rate from the initial 10% to 15%. Despite this change, there remain significant cross-country differences in tariff rates. China and Brazil benefit, while the UK and Australia suffer losses. The overall global impact is positive but modest, with no significant country-level shifts. Therefore, the change has little effect on offsetting the negative developments linked to the ongoing conflict in the Middle East.

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